Materi 8

International Auditing Issues

The Accounting and Auditing
Profession
Auditing mempunyai 3 syarat
◦ An objective (independent), orang yg
berkompeten
◦ Informasi yg dapat dihitung dan dapat
diverifikasi
◦ Adanya standar auditing
Kualitas profesi auditing bergantung pd
◦ Reputation of the profession
◦ Quality of the educational system
◦ Certification process
Jasa Audit (KAP) Global
Audit/Atestasi and Assurance
Konsultasi pajak
Konsultasi Manajemen
Paket standar auditing sulit
digunakan karena perbedaan
secara internasional
Risiko dalam menentukan lingkup audit pada
perusahaan multinational (Hermanson, 1993)
Significant or unusual transactions at a sub
Size of sub (revenue, net income, assets)
Perubahan besar pada laba bersih sub’s
Harapan Audit committee
Competence of sub’s accounting personnel
Research shows that risks for domestic and
international audits are similar
Tantangan Audit (1):
Praktik Bisnis Lokal
Penggunaan Kas yg Dominan
◦ Makes tracing transactions difficult
◦ Japan – use of checks may not be
traceable due to a lack of provision of
cancelled checks
Ketidakmampuan mengkonfirmasi piutang
◦ Translation into another language
◦ Receiving returned confirmations is
difficult
 Tantangan Audit (2):
Currency, Language, and Law
 Valuta Asing

◦ Auditor must determine if the choice of translation

method is correct
 Language and Culture

◦ Translators may not give the full story

◦ Knowledge of language is essential
 Interaction of Home Country and Local Law

◦ Home countries may have laws that extend to subs

of their domestic companies that operate abroad
◦ Example – Sarbanes-Oxley 404 compliance by 2006
(internal control)
Tantangan Audit (3):
Distance and Organization
Jarak
◦ Operations are not audited as frequently or as
thoroughly
◦ Communication is slow
Organisasi
◦ Firms may need to expand abroad/overseas
◦ Global firm alliances are often used
Tantangan Audit (4):
Diversity, Availability, Training
Supply of Auditors
Differences in Training – 3 models
◦ Does not require specific university training in
Accounting – U.K.
◦ University-based model – U.S. and Germany
◦ Dual track model
Hubungan Timbal Balik (1)
 Principles for Reciprocity
◦ Signed between the AICPA, NASBA, and CICA
◦ Extended to Australia (ICAA)
◦ A short-form exam is administered
 Eighth Directive (EU) – auditors must

◦ Obtain qualifications that are deemed to be

equivalent to the reviewing authorities in the host
country
◦ Demonstrate that they understand the laws and
requirements for conducting statutory audits in
the host country
Hubungan Timbal Balik (2)
Sarbanes-Oxley and Public Company
Accounting Oversight Board made
reciprocity more difficult
European Commission established a
provision similar to Sarbanes-Oxley in
2004
◦ Requirements include
 Regular rotations of auditors
 Independent audit committees at every company
 Registration and regular inspection by the PCAOB
◦ Proposal on establishing national watchdog
organizations is still in the works
Structure of the Audit Industry
Statistics found in Economist, 2004
Big Four
◦ Audit 97% of all public companies in the U.S.
with sales over $250 million
◦ Audit 80% of public companies in Japan
◦ Audit two-thirds of public companies in Canada
◦ Audit all of U.K.’s 100-biggest public companies
◦ Hold over 70% of the European market by
revenue
Structure of the Audit Industry
Enron and Sarbanes-Oxley brought
changes
◦ PCAOB (2002) was established to regulate the
accounting profession and monitor firms
◦ Sarbanes-Oxley prohibits firms from
providing many non-audit services to audit
clients (Sarbanes-Oxley Act, 2002)
◦ Risks have increased for large international
firms
◦ Compliance with Audit Standard on internal
control has been difficult and costly
 Some firms have had to drop clients
Strategies of the Global Audit Firm
Companies who switch to international auditors
give these reasons for the switch
◦ The need to reflect the increasing size of
overseas business
◦ The need to have one firm auditing all
companies within the group
Large audit firms have become multinational
firms with strong global focus and control
Strategies of the Global Audit Firm
Mergers allow firms to gain stronger market share
in emerging markets
Citron and Manalis (2001) findings indicate

◦ Companies in emerging markets hire large

international audit firms to add credibility to the
financial statements
◦ This credibility allows companies to obtain
international financing and list on foreign
exchange markets
Audit Standards
Vary considerably from country to
country
Standards come from
◦ The public sector (government) – U.S. now
◦ The private sector – U.K., Canada
◦ A combination of the two – Germany
Requirements for a compliance audit
◦ U.S. – all publicly-traded companies and those
with more than 500 shareholders and assets of
more than $5 million
◦ U.K. – all limited companies must be audited
International Harmonization of
Audit Standards
 IFAC is attempting to harmonize audit standards
and audit professions globally
 IFAC sets standards in the following areas
◦ Auditing, assurance engagements, and related services
◦ Quality Control
◦ Code of Ethics
◦ Education
◦ Public Sector Accounting
 IFAC is also involved in issues relating to small and
medium size companies in developing countries
International Harmonization of
Audit Standards
International Auditing and Assurance Standards
Board (IAASB)
◦ Develops ISAs and International Standards on
Review Engagements
◦ Develops International Standards on
Assurance Engagements
◦ Develops related practice statements
(IAASB Handbook, 2005)
Benefits of Developing and Enforcing
International Standards
Readers of financial statements have
justifiable confidence in auditor’s opinion
Readers of financial statements have greater
assurance that accounting standards are
adhered to
Readers are assisted in making international
financial comparisons
Further incentive to improve and extend the
set of international accounting standards
Benefits of Developing and Enforcing
International Standards
Increased flow of investment capital
Developing countries will find it easier to
produce domestic auditing standards
The broader information gap between
investors and management of MNEs is
lessened
Harmonization
European Commission plans to adopt
ISAs for all audits effective January 2007
(Sylph, 2005)
Gaining PCAOB collaboration is key to
the success of IFAC’s initiatives
PCAOB may slow down harmonization
in the U.S. (Giles et al., 2004)