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Chapter 14 - Comparative International Auditing and Corporate Governance

CHAPTER 14
COMPARATIVE INTERNATIONAL AUDITING AND
CORPORATE GOVERNANCE
Chapter Outline
I.

Auditing is an integral part of multinational corporate governance.


A. Auditing is expected to improve the precision, quality and reliability of information
made available to the market, and to enhance investor confidence in such information.
B. With the current trend toward globalization of markets, and rapid growth in
international transactions, securing investor confidence is crucial for MNCs.
C. The Organization for Economic Cooperation and Developments (OECD) revised code
of corporate governance emphasizes among other things, that auditors should be
accountable to shareholders, and that boards of directors should effectively oversee
the financial reporting function.
D. Some of the specific measures introduced by the Sarbanes-Oxley Act to improve
corporate governance relate directly to auditing, for example, establishment of a new
oversight board for the accountancy profession, tightly defining independence of audit
committee members, requiring external auditors to report directly to audit committee,
and prohibition of certain non-audit services by external auditors.

II.

There are major variations in many aspects of external auditing across countries, including
the purpose of external auditing, the audit environment, regulation of auditing, and audit
reports.
A. The purpose of external auditing can be different between Anglo-American countries
and continental European countries. For example, German auditors take a much
broader view of the concept of client than do their counterparts in the U.K., perhaps
due to the particular corporate governance structure in Germany.
B. The cultural value orientation of a particular country can have an impact on the audit
environment in that country. For example, the perception of auditor independence and
audit judgment can be affected by culture. The audit environment of a country is also
heavily influenced by its accounting infrastructure, which includes preparers and users
of information, information intermediaries, and mechanisms for regulating accounting
information.
C. Approaches taken to regulate auditing in different countries range from those that
leave the task largely in the hands of the profession, such as in Anglo-American
countries, to those that rely heavily on government, such as in China.
D. There are significant differences in the audit reports in different countries, and
sometimes different companies within the same country. For example, such
differences could arise as a result of an audit conducted by using a different set of
standards from that used in preparing the financial statements (e.g., Toshiba), or by
using both local and international standards (e.g., Bayer AG), or by using multiple sets
of standards aiming at different audiences (e.g., Unilever).

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Chapter 14 - Comparative International Auditing and Corporate Governance

III.

International harmonization of auditing standards is important mainly to assure the


international capital markets that the audit process has been consistent across
companies.
A. The responsibility for developing international auditing standards rests with the
International Federation of Accountants (IFAC).
B. As a condition of membership, IFAC member bodies support the auditing standards
and other statements developed by the IFAC through its International Auditing and
Assurance Standards Board (IAASB).
C. In December 2004, the IAASB issued a revised ISA 700 aiming at enhancing the
transparency and comparability of auditors reports across international borders.
D. Auditors are expected to comply with IFACs Code of Ethics for Professional
Accountants.
E. In accordance with IAS 1, the International Auditing Practices Committee (IAPC)
specifies that financial statements should not be described as complying with IFRS
unless they comply with all the requirements of each applicable standard and each
applicable interpretation of the IFRIC.
F. The International Organization of Securities Commission (IOSCO) supports IFACs
standards on auditing.

IV.

Issues concerning auditors liability have been the subject of debate and discussion in
many countries recently.
A. Big 4 accounting firms strongly advocate that auditors liability should be limited.
B. In some countries, audit firms are allowed to change their ownership structure in order
to limit their liability.
C. In the U.K., for example, audit firms can operate as limited liability companies.
D. Another approach taken to limit auditors liability is the use of the concept of
proportionate liability, such as is found in Australia and Canada.
E. Statutory cap is yet another strategy for limiting auditors liability. This approach is
used in Germany.
E. Sometimes auditors include disclaimers of liability in their audit opinions to protect
themselves from unintended liability. This is a common practice among the U.K.
auditors.

V.

One of the main principles governing auditors professional responsibilities is


independence.
A. Having stockholders involved in the auditor appointment process is expected to
strengthen the independence of auditors from management. However, this may not be
very effective as it is the management of the company who actually selects the auditor,
after negotiating fees and other arrangements.
B. Prohibition of the provision of certain non-audit services to client companies is another
method aimed at securing auditor independence. The Sarbanes-Oxley Act in the
United States contains specific provisions in this regard.
C. Regulatory oversight often is used to secure auditor independence. Examples include
the Professional Oversight Board for Accountancy (POBA) in the U.K., the Public
Company Accounting Oversight Board (PCAOB) in the U.S., and the Public Interest
Oversight Board (PIOB) of the IFAC.
D. Mandatory rotation of audit firms has often been advocated as a means of
strengthening auditor independence.

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Chapter 14 - Comparative International Auditing and Corporate Governance

E. The large accounting firms have resorted to splitting the organizations into separate
entities, each dealing with a specific operation area as a way of addressing the auditor
independence issue.
F. In some countries, such as the U.K., the admission criteria for professional auditors
have made more stringent on the assumption that it would help secure auditor
independence.
G. Some countries have taken a principles-based approach, for example, Canada,
whereas some others have taken a conceptual approach, for example, Germany, in
addressing the issue of auditor independence. Under a principles-based approach the
requirements go beyond any specific situation and mandates a proactive approach
based on clearly articulated principles, whereas a conceptual approach focuses on the
underlying aim rather than detailed prohibitions.
VI.

An audit committee is a committee of the board of directors that oversees the financial
reporting process including auditing.
A. In many countries, listed companies are required to establish an audit committee.
B. An audit committee is generally responsible for monitoring the financial reporting
process, overseeing the internal control system and overseeing the internal audit and
independent public accounting function.
C. The Sarbanes-Oxley Act contains specific provisions dealing with issues related to
audit committees, expanding their role and responsibilities.
D. In 2003, the SEC introduced new rules to prohibit the listing of companies that fail to
comply with the Sarbanes-Oxley Acts requirements.

VII. Internal auditing is a segment of accounting that utilizes the basic techniques and methods
of auditing, and functions as an appraisal activity established within an entity.
A. The internal auditing function includes review of the accounting and internal control
systems, examination of financial and operating information, review of operating
controls, including non-financial controls, of an entity, and review of compliance with
laws, other regulations, and management policies.
B. The function of internal auditing is directly related to corporate governance, and the
Institute of Internal Auditors (IIA) has issued many statements strengthening the
function of internal auditing.
C. The Sarbanes-Oxley Act specifically recognizes the importance of internal auditing in
restoring credibility to the system of business reporting, and the SEC requires listed
companies to have an internal audit function.
D. Internal auditing is an integral part of managing a MNC. The U.S. Foreign Corrupt
Practices Act 1977, the Treadway Commission Report 1987, the Report of the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission 1992,
and the International Anti-Bribery and Fair Competition Act 1998 all recognize the
importance of internal auditing.

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Chapter 14 - Comparative International Auditing and Corporate Governance

Answers to Questions
1. Auditing issues should be of concern to any firm that seeks funds from the capital market,
because auditing improves the quality and reliability of the financial information made
available to the market, and helps secure investor confidence. This is of particular
importance to MNCs as they usually raise funds from capital markets in different countries.
Hence, they have to be able to satisfy the needs of a variety of international investors.
Failure to do so would jeopardize their efforts to succeed in an increasingly competitive
global business environment.
Further, since MNCs are involved in the audit of non-domestic subsidiary companies,
international auditing issues are of interest to them.
2. The revised version of the OECD Principles of Corporate Governance issued in 2004 is
designed to strengthen corporate governance practices in companies around the world. The
main difference between the 1999 version and the 2004 version is that the 2004 version
gives shareholders stronger rights. For example, it emphasizes that the auditor should be
accountable to shareholders, not to management. It also places more responsibility on the
board of directors requiring that the board of directors should effectively oversee the
financial reporting function, and ensure that appropriate systems of control are in place.
3. The Sarbanes Oxley Act provides a tight definition of independent audit committee
members. It requires external auditors to report directly to the audit committee.
The New York Stock Exchange (NYSE) requires listed companies to have an audit
committee composed entirely of independent directors. It also requires that listed companies
should adopt and disclose governance guidelines, codes of business conduct, and charters
for the audit committees.
4. The primary role of external auditing in a particular country is determined mainly by the
corporate governance structure of that country. For example, in the Anglo-Saxon countries,
which have one board of directors, the auditors primary role is to report to the shareholders
of the company, whereas in some Continental European countries, which have two boards,
a management board and a supervisory board, the auditors primary role can be different.
For example, the duties of the supervisory board as set out in the German Commercial
Code cover supervision of the management of the company in all branches of its
administration, which includes auditing the income statement, the balance sheet, and the
application of profits suggested, by management. Accordingly, the German auditors
primary role historically has been to report to the supervisory board, not to the shareholders
of the company.
5. Audit quality is the probability that an error or irregularity is detected and reported. The audit
quality in a given country is determined mainly by three factors: the level of competence of
the auditor, the level of independence of the auditor, and the nature of the liability regime.
The level of competence of the auditor in carrying out the work necessary to reach an
opinion determines the detection probability. The level of independence of the auditor
determines the reporting probability. In other words, the higher the level of independence,
the greater the probability that a detected material error or irregularity will be reported. A
strong liability regime will provide incentives for auditors to be independent and produce
high quality audits.

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Chapter 14 - Comparative International Auditing and Corporate Governance

6. The Public Company Accounting Oversight Board (PCAOB) was established in 2002 as an
important part of the efforts aimed at restoring investor confidence in the aftermath of the
financial scandals involving major companies and accounting firms in the U.S. The PCAOB
has been given extensive powers to tighten the regulation of many aspects of accounting
and financial reporting. In the area of auditing the PCAOB has the power to:
Establish or adopt auditing standards, quality control standards, and ethical rules in
relation to the conduct of audits of public companies,
Inspect audit firms, require co-operation with quality control reviews and disciplinary
proceedings,
Impose disciplinary sanctions against accounting firms and individual members, and
Regulate both the U.S. and non-U.S. accounting firms that audit the financial statements
of companies listed on the NYSE, by requiring them to become members.
7. The Eighth Directive was given effect in the U.K. through the Companies Act 1989, which
included specific provisions concerning audit regulation. These include:
Restriction of eligibility for appointment as a statutory auditor to those individuals who
hold a recognized professional qualification and are subject to requirements of a
recognized supervisory body, and
Specific provisions designed to ensure auditor independence, for example, prohibiting
an officer or employee of a company from acting as auditor for that company.
8. Variations in the audit reports of companies in different countries are mainly due to the
particular auditing standards used in preparing those reports. For example, some
companies use local auditing standards, whereas others use International Standards of
Auditing (ISAs), or U.S. auditing standards. Some audit reports are prepared on the basis of
more than one set of audit standards. Different companies in the same country can use
different auditing standards. For example, the audit reports of some Japanese companies,
such as Toshiba, are prepared on the basis of the U.S. auditing standards, whereas those of
other companies, such as Sumitomo Metal Industries Ltd., are prepared on the basis of
Japanese audit standards.
The audit reports of some German companies, such as Bayer AG, are prepared on the
basis of both German auditing standards and International Standards of Auditing.
Interestingly, in the case of other German companies, such as Hoechst AG, while the audit
report states that the audit was conducted in accordance with German auditing standards,
the audit opinion includes a statement to the effect that the consolidated financial statements
are presented fairly in conformity with U.S.GAAP.
In the case of Unilever, the audit is conducted in accordance with the auditing standards in
three countries, the Netherlands, the U.K., and the U.S., and three audit opinions are
expressed using three different sets of wording.
It is common for Chinese companies to use Hong Kong auditing standards in preparing their
audit report. Mexican companies, such as Tubos de Acero de Mexico, normally have two
audit reports, a Report of Independent Accountants addressed to shareholders (often
prepared by a Big 4 firm), and a Statutory Auditors Report addressed to the general
meeting of shareholders. The period covered can be longer than one year. For example, the
Tubos de Acero de Mexico audit report dated February 19, 2001, covers a period of three
years.

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Chapter 14 - Comparative International Auditing and Corporate Governance

9. International harmonization of auditing standards is expected to:


Enhance the credibility of the information provided through corporate financial reports.
Assure the international capital markets that one set of criteria has been applied
consistently across the parent and subsidiary companies.
Facilitate a more efficient and effective allocation of resources in international capital
markets.
Enable audit firms to increase the efficiency and effectiveness of the audit process
globally.
10. International Auditing Practice Statement (IAPS) 1014, Reporting by Auditors on
Compliance with International Financial Reporting Standards, issued in June 2003 by the
International Auditing and Assurance Standards Board (IAASB) of IFAC, specifies that
financial statements should not be described as complying with IFRS unless they comply
with all the requirements of each applicable standard and each applicable interpretation of
the International Financial Reporting Interpretations Committee (IFRIC). An unqualified
opinion may be expressed only when the auditor is able to conclude that the financial
statements give a true and fair view (or are presented fairly, in all material respects) in
accordance with the identified financial reporting framework.
11. In the U.K., changing the ownership structure of an auditing firm from partnership to a
limited liability company is used as a strategy for limiting the auditors liability. Further, U.K.
auditors often include disclaimers of liability in their audit opinions to protect themselves
from unintended liability.
In the U.S., limited liability partnerships are often used to protect the personal wealth of
innocent partners from legal action.
Changing the ownership structure of auditing firms is also used in Germany. Historically, the
use of a statutory cap (an explicit limit on the auditors maximum exposure to legal liability
damages) has been common in Germany, mainly on the grounds that it would relieve the
auditor of a major worry of the possibility of unlimited liability, and limit the premiums of
liability insurance.
12. One factor that complicates the issue of auditor independence is the auditor appointment
process. In order to ensure independence from management, the auditor is expected to be
appointed by the shareholders of the company. However, in reality, it is the management of
the company that actually selects the auditor after negotiating fees and other arrangements,
and the auditors contractual arrangement is with the company management, not with the
individual shareholders.
Another complicating factor relates to the practice of auditors providing various non-audit
services to their client companies. Although the U.S. Sarbanes-Oxley Act and other
regulations have specific provisions prohibiting auditors from providing certain non-audit
services, still there are unresolved issues in this area. For example, large audit firms argue
that certain consulting work, such as in the areas of information systems and electronic
business, in fact helps improve audit quality.

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Chapter 14 - Comparative International Auditing and Corporate Governance

13. The oversight role of an audit committee involves ensuring that quality accounting policies,
internal controls, and independent and objective outside auditors are in place to deter fraud,
anticipate financial risks, and promote accurate, high quality and timely disclosure of
financial and other material information to the board, to the public markets, and to
shareholders [Source: Blue Ribbon Committee (1999, p.20).] In many Anglo-Saxon
countries, it is commonly accepted that the external auditor works for and is accountable to
the audit committee and board of directors. This is different in many Continental European
countries, such as Germany and France, where the auditor works for the supervisory board.
14. A major difference between internal and external auditing is that they have different
functions. The primary function of internal auditing is to examine, evaluate, and monitor the
adequacy and effectiveness of the accounting and internal control system, whereas the
primary function of external auditing is to express an opinion on the financial statements.
Another difference is that the internal auditor is a person within the organization, whereas
the external auditor is an independent person outside the organization. Finally, the role of
the internal auditor is determined by management, and its scope and objective vary
depending on the size and structure of the firm and the requirements of its management;
none of these is true for the external auditor. Management does not determine the role of
the external auditor. In some countries, such as Germany, the role of the external auditor is
defined in the statute. In most countries, it is defined in professional standards. International
Standards of Auditing issued by the IFAC also clearly define the role of auditing.

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Chapter 14 - Comparative International Auditing and Corporate Governance

Solutions to Exercises and Problems


1. The audit report of Unilever N.V. and Unilever PLC reflect several features that are unique to
MNCs.
The report has been prepared in accordance with the relevant requirements of three
countries, the U.K., Netherlands, and the U.S.
It covers three related companies located in three countries.
It has been signed by three audit offices of a Big-4 accounting firm, located in three
countries.
The audit opinion is expressed separately in terms of the requirements of three
countries.
2. Circumstances under which the auditor should express a qualified opinion, disclaimer of
opinion, and adverse opinion as per International Standard of Auditing (ISA) 700 are as
follows:
A qualified opinion should be expressed when the auditor concludes that an unqualified
opinion cannot be expressed but that the effect of any disagreement with management, or
limitation on scope is not so material and pervasive as to require an adverse opinion or a
disclaimer of opinion. A qualified opinion should be expressed as being except for the
effects of the matter to which the qualification relates (paragraph 37).
A disclaimer of opinion should be expressed when the possible effect of a limitation on
scope is so material and pervasive that the auditor has not been able to obtain sufficient
appropriate audit evidence and accordingly is unable to express an opinion on the financial
statements (paragraph 38).
An adverse opinion should be expressed when the effect of a disagreement is so material
and pervasive to the financial statements that the auditor concludes that a qualification of
the report is not adequate to disclose the misleading or incomplete nature of the financial
statements (paragraph 39).
3. Additional guidelines provided in International Auditing Practice Statement (IAPS) 1014 in
expressing an opinion when management claims that financial statements have been
prepared:
In accordance with IFRS: To issue an unqualified opinion, compliance with all the
requirements of each applicable standard and each applicable interpretation of IFRIC is
required. The auditor should be able to conclude that the financial statements give a true
and fair view (or are presented fairly, in all material respects) in accordance with the
identified financial reporting framework.
In accordance with IFRS and a national financial reporting framework: To issue an
unqualified opinion, the financial statements must comply with the requirements of each
of the frameworks individually.

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Chapter 14 - Comparative International Auditing and Corporate Governance

In accordance with a national financial reporting framework with disclosure of the


extent of compliance with IFRS: Entities that prepare their financial statements in
accordance with a national financial reporting framework may disclose additionally, in the
notes to those financial statements, the extent to which they comply with IFRS. Such a
note is treated no differently from any other note to the financial statements. The auditor
considers if the assertions made in the note is appropriate. If the auditor is of the opinion
that the reference to compliance with IFRS is not misleading, the he or she may express
an unqualified opinion on compliance with the national financial reporting framework.
Otherwise, a qualified opinion should be issued.

4. The previous version of paragraph 8.151 of the Code of Ethics for Professional Accountants
reads as follows:
Using the same lead engagement partner on an audit over a prolonged period of time may
create a familiarity threat. This threat is particularly relevant in the context of the audit of
listed entities and safeguards should be applied in such circumstances to reduce such threat
to an acceptable level. Accordingly for the audit of listed entities:
(a) The lead engagement partner should be rotated after a pre-defined period, normally no
more than seven years; and
(b) A partner rotating after a pre-defined period should not resume the lead engagement
partner role until a further period of time, normally two years, has elapsed.
The revised version has changed part (b) above to read, A partner rotating after a predefined period should not participate in the audit engagement until a further period of time,
normally two years, has elapsed. This change effectively prohibits the rotating lead
engagement partner from participating in any auditing role, not just the lead engagement
partner role, until a further period of time has elapsed.
5. Providing proper incentives for the board and management to pursue objectives that are in
the interests of the company and shareholders, and facilitating effective monitoring are two
important objectives of good corporate governance (OECD, 1999). This has implications for
the role of auditing. For example, the OECD (2004) emphasizes that auditors should be
accountable to shareholders, not management. This requirement goes to the heart of the
issue of auditor independence. Auditing facilitates the achievement of the objectives of
good corporate governance. For example, external auditing provides assurance to
shareholders and other that the information contained in the published financial statements
are of high quality, and internal auditing assists in monitoring risks and providing assurance
regarding controls within the company.
6. It has been argued that a two-tiered corporate structure, with a management board and a
supervisory board, prevalent in many Continental European countries such as Germany,
may be better suited for addressing corporate governance issues including the issue of
auditor independence than the one board of directors corporate structure prevalent in
Anglo-Saxon countries. The rationale behind this argument is that under the two-tiered
structure, the audit responsibility is to the supervisory board, rather than to the management
board, and therefore, the auditor is in a better position to be independent from the influence
of the management board. The supervisory board is unlikely to influence the auditor, as its
function is to oversee managements performance.

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Chapter 14 - Comparative International Auditing and Corporate Governance

Conceptually, this seems to be a plausible argument. However, whether or not this in fact is
the case is an empirical question the answer to which depends on how the functions of the
two boards are conducted in reality.
7. The ownership structure of some business entities in China, particularly former state
enterprises redefined to create new economic enterprises can be described as unique,
because it does not conform to the concept of an entity as the term is commonly understood
in the Anglo-Saxon countries. Historically, business enterprises in China also have other
social obligations in addition to conducting its business activities. These other obligations
include provision of education, housing, and health care for their workers and the citizens in
the region. As a result, other entities that are in those other areas of obligation also have an
ownership interest in any given business enterprise. This means, the ownership of such an
enterprise extends beyond the shareholders and tends to be vague. Under these
circumstances, the auditors responsibility also becomes less certain.
8. In this exercise, the students are expected to explain the concept of accounting
infrastructure, identify its components, and explain the main features of the accounting
infrastructure in their own country.
9. The Public Company Accounting Oversight Board (PCAOB) was established in 2000 to,
among other things, strengthen the auditing function in the U.S. For example, the PCAOB
has the power to establish or adopt auditing quality control standards and ethical rules in
relation to the conduct of audits of public companies, and it may also impose a broad range
of disciplinary sanctions against accounting firms and individual members.
One important step it has taken towards achieving its objective is the decision to require the
auditors of SEC registered companies to obtain membership in the PCAOB. The purpose of
this requirement is to ensure high quality in audit reports of companies that are listed on
U.S. stock exchanges. Initially, auditors of both U.S. and non-U.S. companies that were
listed on U.S. stock exchanges were required to obtain membership in the PCAOB.
However, later it was announced that the PCAOB was willing to rely on the quality standards
of some foreign audit firms, thereby removing the requirement for some foreign audit firms,
which audit companies listed on U.S. stock exchanges, to obtain membership in the
PCAOB.
Another important step is the publication of a new audit standard (PCAOB Release
No.2004-003), requiring two audit opinions from auditors of listed companies: one report on
internal control over financial reporting, and one on the financial statements.
10. a. In the U.S., audit regulation is within the framework of professional self-regulation. For
example, the PCAOB is an independent body, which has the authority to take the
necessary steps as the main oversight body. In Germany, audit regulation is through
legal means, rather than within the framework of professional self-regulation. For
example, there are specific legal provisions concerning admission requirements,
auditors rights and duties, disciplinary measures, etc. Statutory auditors in Germany are
required to register with a public law body (WPK), whereas in the U.S., the statutory
auditors are required to obtain membership in the PCAOB.

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Chapter 14 - Comparative International Auditing and Corporate Governance

b. As two countries that follow the Anglo-Saxon traditions, the U.K. and U.S: have many
similarities in the mechanisms put in place to regulate auditing. However, there are also
some differences. Unlike in the U.S., there is no uniform system of examination in the
U.K. for entry into the profession as an auditor. Four professional bodies in U.K. conduct
their own entrance examinations.
The Accounting Foundation, which performs the public oversight function in the U.K., is
funded by the accounting profession and other interested parties, whereas its U.S.
equivalent, the PCAOB, is funded by government.
In the U.K., to become a Registered Auditor (the U.K. equivalent term for statutory
auditor), auditors are required to register with one of the four professional bodies
recognized for this purpose (namely, the Institutes of Chartered Accounting in England
and Wales, Scotland, and Ireland, and the Association of Chartered Corporate
Accountants). On the contrary, in the U.S., statutory auditors of all SEC registered
companies (including foreign companies) must be members of the PCAOB.
11. As a condition of membership with the IFAC, professional accounting bodies are obliged to
support the work of the IFAC and endeavor to implement its pronouncements in their
countries. However, the main problem facing the IFAC in its efforts to discharge it
responsibility for harmonizing auditing standards internationally is that it does not have any
power to enforce its pronouncements. As a result, it has to rely on the goodwill of its
member bodies in various countries for compliance.
Another major issue is the extent of diversity in auditing standards used in different
countries. This is primarily due to the differences in the accounting infrastructure prevailing
in those countries. For example, if there are no effective mechanisms in a particular country
to enforce regulations, the level of compliance with standards is likely to be low. As long as
these differences exist, they will cause problems in achieving harmonization.
In some countries, the concept of external auditing -- an outsider examining the books and
records of a company -- may be problematic culturally. An example would be Japan.
Implementation of international auditing standards in such a country would be relatively
more difficult.
Nationalism also may play a role in some countries. For example, some professional bodies
may not respond positively to the idea that they have to follow a set of standards developed
by an international body.

12. For this exercise, students should structure their discussion in such a way that it
demonstrates an understanding of the issue of auditor liability and the rationale for the
approach taken in their country.
13. a. The UK corporate governance code which became effective in June 2010 takes a flexible
approach based on comply or explain. The main features of this approach are:
(i) recognition that good corporate governance can be achieved through alternative
means to following a particular provision, and
(ii) requirement that the reason for taking an alternative approach should be
justified with clear explanation.
b. The UK comply or explain approach has been imitated internationally because it
recognizes the need to be flexible in dealing with issues, including corporate governance
issues internationally, as one size does not fit all.

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Chapter 14 - Comparative International Auditing and Corporate Governance

Case 14-1 HONDA MOTOR COMPANY


In providing a solution, identify and comment on the main features of the corporate governance
report of Honda Motor Company as reported in its annual report for 2009.

Case 14-2 DAIMLER AG


In providing a solution, identify the main features of the Supervisory Board report of Daimler
Company included in its annual report for 2009, and compare that report with a typical Board of
Directors' report published by companies in the United States.

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