Over the years auditing has developed into a specialized function with complex ethical, legal and economic implications. The role of the auditors in providing credibility is even more important in a society like Hong Kong, which relies heavily on its reputation as an international centre for finance and business. However, a series of corporate scandals that emerged in 2001–02 in the United States such as Enron and WorldCom underscore the importance of high quality auditing in ensuring corporate transparency and honest financial reporting.
This second edition is thoroughly revised to take into account the new Hong Kong Standards on Quality Control, Auditing, Assurance and Related Services, and the numerous developments of a full range of auditing topics since the previous edition. A major feature of this book is that it boldly draws on economic theories to explain aspects of auditing. Certain general concepts which may be applicable in all aspects of an audit is discussed.
By utilizing many graphics, tables and interesting cases, this book will serve as a useful companion for accounting and legal practitioners. This is also a textbook for students preparing for university and accounting professional examinations. At the end of each chapter there are dozens of exercises, cases, discussion questions for the benefit of teachers, students and life-long learners.
The business environment both in Hong Kong and globally is characterized by rapid changes in terms of E-commerce, information technology and the vast expansion of commerce and technology. These changes and the volatile nature of business evidenced by the recent Asian financial crisis have created unprecedented challenges for the accounting profession. Some of these challenges include a need to improve financial reporting, improve audit quality and generally contribute to better corporate governance. The spate of corporate collapses such as Enron and Worldcom in the United States in the 2000s and the role of auditors in these financial scandals also reinforced the need for corporate governance reforms including higher quality auditing. This book is, in part, a response to these challenges. It provides an up-to-date exposition of auditing including issues related to auditor quality and IT auditing. These and other auditing issues based on Hong Kong auditing standards, law, practice and experience are extensively discussed in this book.
Integrating the economic theory, concepts and practice of auditing, this book is geared towards the needs of accounting students and practitioners not only in Hong Kong, but in countries which have auditing standards similar to Hong Kong such as Singapore and Malaysia.
A major feature of this book is that it boldly draws on economic theories (such as agency theory, contracting theory, economics of ethical compliance behaviour, audit product differentiation, and corporate governance to name a few) to explain aspects of auditing. The book also provides updated material on the auditor legal duty and liability, statistical audit sampling and IT auditing.
Organization of Contents
Chapters 1 and 2 provide an overview of the development and nature of auditing. Chapter 2 also includes a discussion of the economic theory of auditing, and integrated within this framework is a discussion of the Hong Kong Auditing Standards. Chapter 3 covers the auditor's duty and legal liability, while Chapter 4 is concerned with the ethical dimensions of auditing.
The technical aspects of the audit process, including risk analysis, are covered in Chapters 5 to 18. Chapter 5 provides an overview of the audit process, including the phases of the audit and an examination of evidential matter and working papers. Since there is a clear emphasis on the risk analysis approach to modern auditing this is discussed in Chapter 6. The Chapter also includes a discussion of business risk and its relationship to audit risk. It recognizes the importance of materiality and the going concern assumption in evaluating audit evidence. The study and assessment of the internal control structure is covered in Chapter 7. This Chapter includes a discussion on the role of corporate governance including audit committees. Chapter 8 deals with audit sampling, including some of the basic concepts underlying statistical sampling and risk assessment. Chapters 9, 10 and 11 concentrate on IT auditing and introduce updated material and ideas. Chapter 12 provides a discussion of tests of controls or compliance testing and substantive testing. Chapters 13 to 18 present a detailed treatment of the audit of the major accounting subsystems, including reference to risk analysis. Chapter 19 deals with the audit report ?the culmination of the audit process. Chapter 20 concludes the book by providing a detailed treatment of internal auditing and operational auditing.
A number of revision questions, cases and problems have been included at the end of each Chapter. These can be used by the student or lecturer to determine whether the ideas contained in each Chapter have been grasped.
