seven largest accounting firms) and the institutional muscle of the World Bank and
other international institutions such as IOSCO (the International Organization of Se-
curities Commissions), the Organization of Economic Cooperation and Development
(OECD), and the International Monetary Fund (IMF), when combined and utilizing
both their contacts, could be harnessed in the interests of enhancing accounting ca-
pacity and capabilities in developing and emerging nations (see http://www.ifad.net)..) Initial
meetings lead to a significant broadening of IFAD’s objectives to focus on common
worldwide issues. Currently, IFAD provides a mechanism through which more than
30 international organizations work in an informal “partnership” to fulfill a common
mission of improving financial reporting, accountability, and transparency world-
wide. In addition to those noted above, IFAD members include the International Ac-
counting Standards Board (IASB), the Basel Committee on Banking Supervision,
and the International Association for Accounting Education and Research (IAAER).^4
Key components of IFAD’s Vision hold that:
all general purpose financial information must be prepared using a single world-wide
framework using common measurement criteria and fair and comprehensive disclo-
sure.... The Vision will not be achieved overnight and will require significant long-term
efforts. National accounting standards of most countries should be raised with IAS as
the benchmark ... a strong world-wide audit profession must be developed. The Vision
is for all general purpose financial statements to be audited in compliance with a single
world-wide framework of auditing standards that provides users with assurance regard-
ing the results, financial position and changes in financial position of entities and that is
applied rigorously and consistently. The implementation of international standards on
auditing will result in significant enhancement in national standards in many countries.
The common high standards on ethics and specifically on independence required in the
profession will be obtained through implementing new global standards developed by
IFAC.The Vision also discusses the significance of other crucial areas that must be ad-
dressed if change is to materialize. These include corporate governance, financial ac-
countability and reporting laws, and education. IFAD’s Vision is detailed on its Web
site (www.ifad.net).
In the context of this chapter, auditingrefers to the examination of financial state-
ments primarily of business organizations by an independent, qualified auditor for the
purpose of expressing an opinion on how well the financial statements meet certain
established criteria, often called “accounting standards” or “principles.” This func-
tion is usually referred to as the “attest function.” The users of financial statements
may rely on the representations in the statements if they are accompanied by a posi-
tive or unqualified opinion from the qualified auditor. This relationship between the
auditor and the financial statements lends credibility to the statements and makes
possible much of the flow of capital throughout the world. Auditing standards, the
criteria that guide the conduct of the audit, are usually promulgated by professional
or legislative bodies. They are intended to ensure that the external auditors are qual-
ified and that certain procedures and guidelines are followed in all audits.
Interpreting the results of an external audit as represented by the auditor’s report
can be difficult or impossible if the standards that apply to the preparation of finan-
cial statements and to the conduct of the audit differ from country to country. Har-
15.2 IMPORTANCE OF AUDITING STANDARDS AND THEIR HARMONIZATION 15 • 3(^4) Smith, 2002.