Auditing: An International Approach


By Bahram Soltani
May 2007
Financial Times / Prentice hall
Distributed By Trans-Atlantic Publications
ISBN: 9780273657736
660 Pages, Illustrated, 7 1/2 x 9 3/4"
$110.00 paper original


This new book analyses the role of external auditors in a rapidly changing environment and the need to expand their role beyond traditional financial statement audits. It presents external auditing in an innovative manner, with heavy emphasis on theoretical and international issues.

The focus is on coverage of fundamental issues with regard to the framework and conceptual structure of auditing, rather than the details of traditional audit approaches. The book provides a carefully balanced presentation of auditing theory and practice.

This book is suitable for undergraduate and postgraduate students studying courses in auditing as a part of an accounting or business-related degree. It will also be of interest to practitioners, researchers and managers who are interested in current issues of auditing.  


Contents

Preface

List of figures and tables

1. An introduction to auditing and assurance

Learning objectives

Introduction

Questions about the critical role of auditors

The nature and objectives of auditing

Recent changes in the audit environment

A theoretical approach towards auditing

Debating the historical perspective of auditing concepts

The demand for assurance services: An economic explanation

Attestation services

Concluding remarks

Review Questions

Discussion Questions

Bibliography

Notes

2. Demand for and supply of external audit services Learning objectives

Introduction

Debating audit expectations

Demand and supply of audit

Parties demanding financial statement information

The problem of “Information asymmetry”

The economics of information

Supply of financial statement information (mandatory and voluntary disclosures)

Factors affecting corporate financial disclosure

External auditors and supply and demand of financial information

Demand for auditing

Conditions creating demand for auditing

Theoretical explanations of the demand for audit services

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

3. Auditing, organization and governance

Leaning objectives       

Introduction

Auditing and organizations

The economics of corporate governance

The governance malaise

Essential elements of corporate governance

Corporate governance and corporate reporting

External auditing and corporate governance as a multidisciplinary field

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

4. The audit committee, internal and external auditing

Learning Objectives

Introduction

Overview of governance mechanisms

An overview of audit committee and its place in corporate governance structure

Basic functions of the audit committee

Evolution of the role of the audit committee

Audit committee independence

Economic determinants of audit committee independence          

Oversight role of the audit committee in corporate financial reporting

The relationship between the audit committee and internal auditing         

Oversight role of the audit committee in the area of the company’s financial risks and internal control

The audit committee and independent auditors

Audit committee and compliance with laws and codes of conduct

Concluding remarks

Review questions

Discussion questions

Appendices

Bibliography

Notes

5. International Auditing and Assurance Services

Learning objectives

Introduction

Generally Accepted Auditing Standards in the US

The IFAC and the international harmonization of auditing standards

International Standards on Auditing (ISAs)

The role of the International Auditing Practices Committee in setting International Standards on Auditing

The role, composition, and objectives of the IAASB     

The frameworkof International Standards on Auditing General principles of an audit

The International Standard on Assurance Engagements (ISAE 3000)

Principles and essential procedures for assurance engagements

Harmonization of accounting standards

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

6. Auditing in the European Context Learning objectives       Introduction

European directives in statutory auditing

Eighth European Directive (1984) and approved new Eighth Company Law on statutory audits (2005)

Major features of the approved directive on audits of company accounts

Other European Commission’s actions in statutory auditing

Summary of the European Commission priorities in auditing

European Commission's strategy with regard to US regulations

European Federation of Accountants (FEE)

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

7. Auditor Independenceand Professional Ethics - International Issues

Learning Objectives

Introduction

The fundamental ethical principles of the audit profession

Auditor independence in question

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

8. Audit Risk, Materiality and Business Risk Management

Learning objectives

Introduction

Different types of audit risk

The Audit Risk Model (ARM) at the planning stage

The external auditor’s risk assessment procedures

Business risk

Concluding remarks

Review questions

Discussion questions

Appendix

Bibliography

Notes

9. Audit Sampling Techniques

Learning objectives

Introduction

Uncertainty and audit sampling

Evidence and sampling

Sampling risk

Non-sampling risk

Statistical and non-statistical sampling

Comparison between statistical and non-statistical sampling approaches

General discussions on audit sampling

Audit sampling techniques

Steps involved in statistical sampling

Concluding remarks

Review questions

Discussion question

Bibliography

Notes

10. Evidence and Decision-Making in Auditing

Learning objectives

Introduction

The concept of audit evidence

Auditing as a decision-making process

Heuristics and biases

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

11. Internal Control over Financial Reporting and IT Environment

Learning objectives

Introduction

The need for control

Internal control definition

Internal control framework

Relationship of objectives and internal control components

“Tone at the top” or “control environment”: The most pervasive

component of internal control

The auditor’s understanding of control environment

Limitations on internal control effectiveness

The auditor’s understanding of external environment

Reporting on internal control over financial reporting

Assessing the reliability of internal controls

Reporting on internal control

EnterpriseRisk Management (ERM)

Effectiveness of internal control in an information technology environment

New developments in the audit of internal control within theIT environment

Major features of the COSO report in the area of IT

The US Sarbanes-Oxley Act on IT controls

The IFAC on information technology and audits of internal control

TheIFAC’s guideline on monitoring internal control systems

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

12. Audit Reporting

Learning objectives

Introduction

Reporting Standards

Types of audit reports

The standard audit report

Forming the opinion on the financial statements

Departures from standard audit report

Departures from an unqualified audit report

Qualified reports

Some other reporting responsibilities of external auditor

Auditor’s report in the European countries

Concluding remarks

Review questions

Discussion questions

Problems

Cases

Appendix (Auditors’ reports in the European countries)

Bibliography

Notes

13. Information Technology and Auditing

Learning objectives      

Introduction

An overview of information technology environment

Major challenges facing the auditors in an IT environment

Auditing and electronic commerce and electronic-business

Reliability of accounting information and IT risks

Audit risk in an e-commerce environment

Information technology risk management

Planning the audit in a computer environment

Auditor’s concerns regarding risk assessment in an IT environment

Computer assisted audit techniques (CAATs)

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

14. Continuous Auditing and Continuous Reporting

Learning objectives

Introduction

An overall assessment of IT in organizations

IT controls and the auditor

COBIT framework

Information technology advances and assurance services

Continuous reporting

An overview of XBRL

An overview of continuous audit: assurance in a real-time economy

Continuous assurance

Continuous monitoring

Similarities and major differences between continuous monitoring and continuous auditing

Concluding remarks

Appendix

Review questions

Discussion questions

Bibliography

Notes

15. Quality Control and Oversight Systems in Auditing – International Issues

Learning objectives

Introduction

An overview of quality control in auditing at international level

Standard setting in auditing

Ethical standards

Public oversight of the auditing profession

Self-regulation

Monitoring, disciplinary schemes and sanctions

The position of the IFAC on quality control for audit and assurance services

Quality control in the European Union

Audit quality control in the United Kingdom

Audit quality control in the United States

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

16. Auditor Liability in a Changing Environment

Learning objectives

Introduction

Company accounts: Who is liable?

Economic analysis of auditor’s liability

The increasing litigation risk against auditors

Changes in the legal environment

The different types of audit professional liability

Concluding remarks

 Review questions

Discussion questions

Bibliography

Notes

17.TheIndependent Auditor, Stock Market and Lending Decisions

Learning objectives

Introduction

The auditor’s role in corporate financial reporting 

The critical role of auditors and changing audit environment

Auditors and the capital market

An overview of market efficiency

Demand for capital market research in accounting and auditing

Event studies in accounting and auditing

Studies on the relationship between audit opinion and stock price

Problems of research design

Significant contributions to market research on audit reports in the 1980s

Complementary studies on capital market research in auditing in the 1990s

Lending decisions, accounting information and the independent auditor

Future research dircetions

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

18. Corporate Fraud, Corporate Scandals and the External Auditing

Learning objectives

Introduction

Fraud and error in financial statements

The importance of the concept of fraud in corporate reporting and auditing

Auditor’s responsibilities for detecting material misstatement due to fraud

Audit procedure for information to identify the risks of material misstatement due to fraud

Red Flags of Fraud “Warning signals”

Temptation to manage earnings

The audit profession and corporate financial failures

Concluding remarks

Appendix

Review questions

Discussion questions

Bibliography

Notes

19. Auditing: Looking Ahead

Learning objectives

Introduction

How the audit profession got to where it is today

The bubble economy: does it do more harm than good?

Audit concentration

Implications of firms moving into consulting services

Major challenges facing the audit profession in recent years

Regulator’s reaction to audit concentration

Regulation and oversight: Is the auditing profession unable to regulate itself?

Audit education for the 21st century

Research in auditing as an imperative

Auditors facing a world of change

The revolving door: auditor tenure and audit quality

Economics of audit pricing: A major challenge for the audit market and regulators

The litigation crisis in auditing

Globalization of capital markets, and harmonization of accounting and auditing standards

Where do we go from here?

Concluding remarks

Review questions

Discussion questions

Bibliography

Notes

Glossary

Index

 

Features



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