auditor to have a small financial interest in a client. Although the United States is
generally regarded as having the most stringent independence standards, it allows au-
ditors to perform tax and consulting services for clients who are being audited with-
out impairment of independence. Due to recent developments, the practice of pro-
viding certain consulting services to public companies will likely be disallowed in
the future in the United States. In contrast, a firm in Japan cannot perform these func-
tions for the same client for which it also serves as auditor, and in the Netherlands
these tasks are not generally performed for an audit client, whereas in France they are
not permitted in a statutory audit. The Eighth Company Law Directive gives discre-
tionary power to member states to determine the conditions of independence for a
statutory auditor. In practical terms, this action will probably lead to a variety of def-
initions of independence, because member states are likely to follow their existing
philosophies of independence.
15.7 AUDIT REPORTS. IAG No. 13 provides guidelines for the concept of audit re-
ports, recommending that the auditor’s report contain the following basic elements:
title, addressee, the date of the report, the auditor’s address, and signature.^11 This rec-
ommendation that the auditor’s unqualified report contain three paragraphs: an open-
ing paragraph that identifies the financial statements and states management’s and the
auditor’s responsibilities, the scope paragraph describes the nature of the audit, and
the opinion paragraph that expresses the opinion on the financial statements. Exhibit
15.5 summarizes the form of the audit report for the countries contained in this sur-
vey.
As can be seen in Exhibit 15.5, Argentina, Canada, the United States, Italy, the
United Kingdom, Japan, Hong Kong, Korea, the Philippines, Singapore, and Kenya
comply substantially with this standard. Other countries diverge from these guide-
lines. France, for example, requires a report of related parties with no standard for-
mat, and, in the Netherlands, there is not a standard format but there is a reference to
international auditing standards. In about half of the countries, such as Argentina,
Japan, and the United States, the opinion states that the financial statements “present
fairly,” and in others, such as Germany and Sweden, reference is made to compliance
with the country’s laws.
From the varying degrees with which these countries conform to IAG No. 13, it is
clear that substantial differences in how auditors communicate to users of financial
information exist from country to country. For a user of the audited financial state-
ments to be able to interpret the auditor’s report of a particular country, it is neces-
sary to know and to understand the auditing standards of that country.
15.8 SUMMARY. Although there are differences in auditing standards among the
18 countries surveyed, there are also substantial similarities. The differences that do
exist stem from the dichotomy that exists between countries that rely on law for au-
diting standards and those that rely on professional bodies. Areas where this differ-
ence has an impact are in the identity of the auditor as a statutory auditor and pro-
fessional accountant, the source of auditing standards, ethical standards and their
enforcement, and the form and content of audit reports. Unique features in auditing
standards tend to show up in countries such as Sweden, France, and Italy, which are
15 • 38 TAXONOMY OF AUDITING STANDARDS(^11) International Federation of Accountants, 2001, pp. 212–213.