for enforcement. For example, during 1990, IFAC issued a Code of Ethics for pro-
fessional accountants that set forth fundamental principles of professional conduct.
The fundamental principles include integrity, objectivity, professional competence,
and due care, confidentiality, professional behavior, and compliance with interna-
tional and national technical standards.^8 Since IFAC “believes that due to national
differences of cultural, language, legal and social systems, the task of preparing de-
tailed ethical requirements is primarily that of the member bodies in each country
concerned,”^9 it remains to be seen how much influence these guidelines will have in
the harmonization of ethical standards.
(b) Legal Liability and the Detection of Fraud. The auditor is usually held liable by
the client for breach of contract, including the failure to carry out an audit in a timely
and professional manner. The liability of the auditor to third parties varies greatly
among the countries studied, but it usually stems from failure to perform the audit in
accordance with established professional standards. For instance, simple negligence
on the part of the auditor is normally not sufficient in the United States or Germany
for a third party to win, but in other countries, such as Sweden, the United Kingdom,
Japan, Hong Kong, Saudi Arabia, and Kenya, the auditor can apparently be held li-
able to third parties for simple negligence. In all countries, the auditor can be held li-
able for fraud or gross negligence.
The issue of the auditor’s responsibility for detection of fraud and error is ad-
dressed in ISA No. 1, which places the responsibility for the prevention and detec-
tion of fraud and error on management. It holds that the auditor “is not and cannot be
held responsible for the prevention of fraud and error.” However, “In planning the
audit the auditor should assess the risk that fraud and error may cause the financial
statements to contain material misstatements and should inquire of management as to
any fraud or significant error which has been discovered.” And, “Based on the risk
assessment the auditor should design audit procedures to obtain reasonable assurance
that misstatements arising from fraud and error that are material to the financial state-
ments taken as a whole are detected.”^10
Exhibit 15.3 indicates that this guideline most closely resembles the auditor’s re-
sponsibility as defined in the United States, Canada, Mexico, the United Kingdom,
Singapore, Japan, and Saudi Arabia. However, in most other countries, including
Canada, France, Italy, the Netherlands, Hong Kong, Korea, and Kenya, the responsi-
bility for detecting fraud is explicitly stated or limited to what might be discovered
in the ordinary course of the audit.
15.6 INDEPENDENCE. Exhibit 15.4 summarizes the approaches to independence
taken by the countries in this study, as well as the functions generally not allowed.All
countries have a test of independence for the auditor, and most stress both the ap-
pearance and the fact of independence. But translation of these concepts into practice
varies considerably. Most countries do not allow the auditor to be an employee or
part of management, but some countries, such as Hong Kong, allow the auditor to sit
on the board of directors in certain instances, and others, such as Korea, permit the
15.6 INDEPENDENCE 15 • 33(^8) International Federation of Accountants, 2001, p. 442.
(^9) International Federation of Accountants, 2001, p. 439.
(^10) International Federation of Accountants, 2001, pp. 79–80.