monization refers to efforts to achieve, through cooperation among national account-
ing organizations, greater uniformity of practice in accounting and auditing, particu-
larly in the financial reporting of business organizations, so that the problems of in-
terpretation will become less difficult. The principal advantages of harmonization of
accounting and auditing standards are that (1) the increased comparability of inter-
national financial information would eliminate possible misunderstandings as to the
reliability of financial statements from other countries, thus removing one of the lead-
ing impediments to the flow of international investment; (2) time and money cur-
rently spent in consolidating divergent financial information, when more than one set
of reports is required to comply with national laws or practice, would be saved; and
(3) the quality of audits throughout the world may be improved.
Harmonization of auditing standards has been an objective of several international
organizations. One of the most important of these is the IFAC, whose members are
the professional accounting organizations of more than 80 countries. The IFAC’s
broad objectives include the “development and enhancement of a coordinated world-
wide accountancy profession with harmonized standards.” The International Audit-
ing Practices Committee (IAPC) of the IFAC, which has responsibility for issuing In-
ternational Standards on Auditing (ISAs), has been a positive force in the
harmonization of auditing standards, even though the IFAC does not have the power
of enforcement. An ISA issued by IAPC does not override local regulations govern-
ing the audit of financial statements in a particular country, but, although local regu-
lations differ from, or conflict with, the ISA, each member country has agreed to
work toward the implementation of the guidelines issued by the IAPC whenever
practicable.
The IAPC has accelerated its activities in recent years to meet the increasing
global demands for high-quality standards. Most of these standards have tended to
focus on specific matters related to the audit, such as planning, the use of the work
of another auditor, audit evidence, and documentation; however, several have dealt
with broader issues, such as the objective of the audit, basic principles governing an
audit, and the responsibility of the auditor for the detection of fraud. Some of these
guidelines are relevant to this paper and will be presented at appropriate points.
Efforts at harmonization have also taken place among the European states. For ex-
ample, the Company Law Directives (legislative instruments adopted by the Euro-
pean Economic Commission’s (EEC) Council of Ministers) have encouraged harmo-
nization. Member states are required to implement the provisions of directives in
their national legislation within a specific time limit, usually three years. Several di-
rectives deal with accounting matters: the Fourth Directive concerns the layout of an-
nual accounts, valuation methods, contents of annual reports, and provisions for pub-
lication of the accounts; the Seventh Directive deals with consolidated financial
statements; more closely related to auditing standards, the Eighth Directive deals
with the qualifications of professionals who may legally be authorized to perform au-
dits. The coordinating organization for the accountancy profession in Europe is the
Federation des Experts Comptables Europeens, known as FEE. The members of FEE
are national professional bodies. Professional bodies from 26 countries including all
European Union (EU) states were represented. The influence of FEE as the spokes-
body for European accountants has grown rapidly, and although it is not a standard-
setting body, it has considerable influence in promoting harmonization with IFAC In-
ternational Auditing Standards. The pressure to improve auditing standards in Europe
will intensify as the EU moves to international accounting standards in 2005. “In
15 • 4 TAXONOMY OF AUDITING STANDARDS