The business environment both in Hong Kong and globally is characterized by rapid changes in terms of E-commerce, information technology, and vast expansion of commerce and international markets. These changes and the volatile nature of business as evidenced by the recent Asian financial crisis have created unprecedented challenges for the accounting profession. Repeated calls for more accountable corporate governance, and for higher quality in auditing services, are getting louder each day. This book is, in part, a response to these challenges and widely felt needs. It provides an up-to-date exposition of auditing, and in particular, electronic data processing (EDP) auditing, that is based on auditing standards, law, practice and experience in Hong Kong.
Integrating the economic theory, concepts and practice of auditing, this book is geared towards accounting students and practitioners not only in Hong Kong, but also in countries where auditing standards are similar to those in Hong Kong, such as Singapore and Malaysia.
A major feature of this book is that it boldly draws on economic theories to explain aspects of auditing — agency theory, the economics of ethical compliance behaviour, audit product differentiation, audit quality and corporate governance, to name a few. The book provides updated material on the auditor's legal duty and liability, statistical audit sampling and EDP auditing.
A brief description of the organization of the contents may be helpful. Chapters 1 and 2 provide an overview of the development and nature of auditing. Chapter 2 includes a discussion of the economic theory of auditing. 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 treated in Chapters 5 through Chapter 18. Chapter 5 provides an overview of the audit process, describing the phases of the audit as well as an examination of evidential matter and working papers. Since there is a clear emphasis on the risk analysis approach to modern auditing, this approach is fully discussed in Chapter 6, where business risk and its relationship to audit risk are discussed; it also points out the importance of materiality in conjunction with the going assumption in evaluating audit evidence. The study and assessment of the internal control structure is covered in Chapter 7. Chapter 8 deals with audit sampling, where the basic concepts underlying statistical sampling and risk assessment are explained.
Chapters 9, 10 and 11 concentrate on EDP auditing and introduce updated ideas and material. 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, paying special reference to risk analysis. Chapter 19 deals with the audit report which is 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.
Ferdinand A. Gul