Audit Quality: Evaluation of Limits to Harmonization


The vetting and testing all areas of operational management of any organization for effectiveness and accuracy is very important. It can be done through auditing all systems and activities of the business. Colly (1990) states; “Auditing is a process of systematic examination and reviewing of work. It is done by experts including internal or external auditors or an audit team” (p. 43). From his explanation, audits are indeed essential management tools as they represent the state of quality and accuracy of work as evaluated and reviewed by an unbiased external party. The process shows progress of any work in relation to its mission and the objectives. In other terms it assesses the success of process implementation. Auditing can be done in all fields including the maintenance of public funds, institution performances and in financial statements among others (Henninger 2008).

Business organizations can carry out audits of various aspects of business. For instance, a business organization may carry out departmental audits, market audit, staff audit and financial audit among others. As such, the audits become a weighing gauge of the business’s progress in terms of performance of major business aspects such as purpose, strategies, organizational structures, infrastructure, trading practices, and operational process (Pyzdek 2003).

Auditing is vital especially in incidences where human life is on the line for example in aircraft maintenance. As such, it should be done to perfection so as to present an unbiased quality audit. John (1993) states that audit quality is the rate of relevance and goodness of the audit. It mostly depends on the objectivity and thoroughness of the audit. Another factor that equally influences the quality of auditing is the auditor’s knowledge and experience. A good audit is one that is timely, unbiased, done thoroughly within its objectives and done by a qualified auditor. Another vital element of audit quality is the consistency of auditing process. This is the correspondence among all audit related aspect. It is the element that reflects the uniformity of successive results. Its main importance is for compatibility and reliability of auditing. This consistency in auditing is very vital especially in the capital markets.

Evaluation of limits to harmonization

China is one of the countries that have been in the frontline of global harmonization on audit accuracy and international consistency. There are bodies set up in China that are legally authorized to oversee all auditing standards in the country. An example of these bodies is HKICPA. It has a Council that formulates and oversees the implementation of accounting by-laws. The body works closely IFAC of which it is a member. HKICPA agreed upon fusing HKSAs with ISAs issued by IAASB of the IFAC. “This resulted from the Preface to the Hong Kong Standards on Quality Control, Auditing, Assurance and Related Services (2005)” (HKICPA 2005, p.6). The committee in charge of Auditing and Assurance Standards was given the mandate by HKICPA to formulate Hong Kong Standards on Quality Control, Auditing, Assurance, and Related Services. This was aimed at blending the convergence with ISAs. HKICPA (2005) states that, “Comparison Table of Hong Kong Auditing Standards and International Auditing Standards, the HKICPA adopted the vast majority of ISAs as national standards, except for two standards, ISA 600 and ISA 800” (p.6). There were a number of clarity projects in 2009 done to update and clarify both ISAs and HKSAs. John (2008) states:

Clarified HKSAs were therefore accordingly issued in batches over the period of June to September of 2009. A review of the June 2010 edition of the HKICPA’s E-Handbook reveals that clarified HKSAs have beenadopted and are in line with the corresponding clarified ISAs, with the exception of the HKSA corresponding to ISA 505. (p. 14). By 2005 HKICPA ruled out that there must be auditing of self-assessment and financial statements of all private companies as well as state parastatols. The auditing however had to be in accordance with HKSAs. This demanded that the auditing procedure be of high quality and consistence. The rules and regulations of HKMA demand that legal institutions such as banks have to comply with accounting and auditing standards as set by HKICPA, failure to which HKMA may forward the case to HKICPA for further procedures. In some instances the licenses of these companies are revoked until they comply with the regulations.

China has made recommendable efforts in enhancing confidence in the quality of its financial statements. This is reflected in the out put of its auditors, accountancy regulators and standard setters. The initiative has particularly been in the light of problems encountered in major capital markets. According to HKSAs and HKMA reports, these problems have greatly affected the global market (Dan 2009). There have been several measures and efforts to emphasize on both local and international audit consistency. However, there are a number of challenges that have become limits to harmonization in auditing. Most of these affect national environments.

A good example of these challenges is the wide spread political differences among key stakeholders in auditing. In his article; Harmonization of international accounting standards, Weber (1992) notes that China is liberal state with a huge population. With such a population, it is obvious that there must be political differences among citizens. The out come of these differences is people trying to out do each other. When it so happens, there might be rumbles within these bodies like HKSA, HKMA and HKICPA that are supposed to withhold good auditing reputation. Body members may forfeit the quality of auditing for their own selfish political reasons. International auditing principles such as “ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing (effective 2009) have been compromised due to political differences in HKSAs” (HKICPA 2005, p. 8).

The national differences in the economic and business environment have the same effects on audit quality. Economic difference may result into unhealthy competitions in the corporate world. The effects of this kind of completion are felt when business organizations engage in presentation of false audit reports (HKICPA 2008). Some of the reports are carried out in favor of particular organizations so that they do not reveal their poor performances to their business rivals, who may take up the opportunity as a source of inspiration.

The general level of education of the country also plays a key role in audit quality. It is obvious that lack of adequate knowledge in the field would result into poor auditing. This is because auditing is an exercise that requires high expertise. It is therefore necessary for auditors to be aware of their responsibility. They should be unbiased, time conscious, and objective when doing the auditing. Another factor that complies with education is job experience. Good job experience is an added advantage to the auditor, hence good quality work. It is because of this experience, backed by education that auditors gain self realization of their responsibilities. This acts in favor of the international principle; ISA 240: the Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements (effective 2009).

Poor legal frames works also limit harmonization. The effects of poor legal frameworks affect audit quality by not addressing the root cause of the problem. For instance, the legal frameworks may fail to address the cases of unlawful auditors who carry out key audits. Such auditor may be biased and still go scot-free. They usually bend to external influences of power, politics, and religions thus do their in favor of these influences. The effects of these may be dreadful especially when the audit is on vital areas such as aircraft maintenance. HKICPA (2005) states:

  • Misfortunes of various legal frameworks have resulted into formulation of a number of principles such as; ISA 240: The Auditor’s Responsibilities
  • Relating to Fraud in an Audit of Financial Statements (effective 2009), ISA 210 Agreeing the Terms of Audit Engagements (effective 2009) and ISA
  • 250 Consideration of Laws and Regulations in an Audit of Financial

Statements (effective 2009) among others. (p. 10). According to HKSA, compliance with the requirements these principles has and will bring harmony in auditing (Chan 2007).

The difference in the perceptions of audit held people worldwide is another key limiting factor to harmonization. Perceptions in auditing differ from one person to the other. HKSA article; Assessment of the Regulatory and Standard-Setting Framework, state that this perceptions are brought out with the differences in culture, religion and social life of people (HKICPA 2008). The article is keen to note that China and especially Hong Kong have had difficulties in accommodating these differences in perception. It is a factor that affects all the stakeholders in auditing. Auditors and audit teams may also differ in the perception they personally have regarding auditing. The main challenge related to these differences is the difficulty of reaching an agreement. For instance, when the problem is so pronounced within a particular audit team, the whole audit process may be derailed due to lack of consensus among the team members. The problem was so pronounced in Hong Kong in the early years of the 21 centaury that it finally lead to formulation of ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2009) principle that helped in setting laws and regulations to help solve cases of diversity in perceptions of auditing.

Discussion and appraisal of potential national barriers/risks to harmonization

The risks to harmonization of audit quality have been on the rampage in the recent past. This has led to emergency of accounting and auditing governing bodies such as HKICPA. These bodies have been put in place to manage the field for accountability and consistence. One area of emphasis is consistency of auditing and accounting that should meet the international standards. However, the various national barriers appear to be troublesome in the achievement of this desired international consistency. Accounts experts from Britain and those from Common wealth have been very instrumental in Hong Kong accountancy profession. However, even with this influence, the profession still has its own challenges (Evans and Parker 2008).

Recording keeping plays a key role in any organization. It is upon record keeping that an organization keeps track of its trends and progress. It also helps vet accomplishment of set goals and the general mission of the company. The quality of record keeping may be affected by a number of factors. Auditing is one of these factors. However, the two (recording keeping and auditing) are always co-related and their effects are reciprocal. A good and effective audit involves reviewing and examining the past work as recorded in various documents (Brenner 1997). The auditors examine these documents such as financial statements and make their conclusion based on their accuracy and consistence. A poor record keeping may result into poor quality of auditing. This is entirely because poorly kept records may lack vital documents that form the basis of the audit.

Another area that is equally interconnected with the quality of audit is the extent of management authority. Management authority is the main influencer of audit quality (Chan 2007). The authority gives mandate to auditing firms to audit their companies/organizations. There are cases where this management authority gets more involved in auditing. This may have both positive and negative effects on the audit quality depending on the intentions of the involvement. The involvement that aims at ensuring the process is done in due course is recommendable. However, when it manipulates the process due to personal reasons, it results into a biased audit that favors a particular party (Stern and El-Ansary 1992).

The expectations of the audit have too become appraisal. These expectations include the public’s general view and those from the corporate world. In the corporate world, the expectations of a good quality audit are that it should be done with some levels of secrecy until the final presentation. The reason of this secrecy is to eliminate potential external interferences in auditing. This is in compliance with the ISA 210 Agreeing the Terms of Audit Engagements (effective 2009) principle of HKICPA that also addresses audit professionalization.


Auditing has really become vital in the corporate world. Chan (2007) states, “Auditing is vital for judging the effectiveness of achieving any defined target levels, to provide evidence concerning reduction and elimination of problem areas” (p. 12). Even though there are a number of challenges facing the whole auditing process, most of these challenges can be controlled by implicating the right measure (Lee 2009). For instance, there could harmonization of the public on the importance of quality auditing. This is aimed at educating all the stakeholders in auditing on the advantages of quality auditing and their role in the whole process. The harmonization process may be in form of organized forums, conferences, as special sessions in business learning institutions among others. The results of a good conducted harmonization program are that there will be reduced cases of auditing ignorance, reduced cases of interferences due to cultural, social and political differences.

Another recommendation is improved legal frameworks. There are several legal related policies and principles. For example “ISA 210 Agreeing the Terms of Audit Engagements (effective 2009) and ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2009) principles” (HKICPA 2005, p. 12). However, these principles cannot be fully implemented without good legal frameworks (Bent and Chan 2002). The frame work should clearly address the issues of fraud in auditing. This will help increase the accuracy through elimination of external influencers such as political influences. For instance, any cases of political interference in auditing in public sectors such as public funds should be prosecuted and punished accordingly (Brenner 1997). Indeed the frame will increase auditors’ morale as at times they are forced to bend to these interferences. It will also help wipe out unworthy auditors.

There can also be creation of more accounting and auditing regulatory bodies such HKICPA. These bodies should be created worldwide to ensure consistency of audit quality around the globe (Eelco 2005). HKICPA has been so instrumental in streamlining auditing and accounting in China. The same can be adopted all over the world with countries coming up with such bodies to closely monitor auditing on a worldwide platform.

Accounting and regulatory bodies such as HKICPA can also organize rewarding programs to the best auditors as a sign of recognition and appreciation. Such programs will encourage health competition among auditors in the country. They will also help improve audit quality as the auditors are appreciated for their quality work thus they will compete to produce good quality work.

Another remedy for the situation is organized international exchange programs. Auditors from a particular country for instance China may be sent to other countries to experience their nature of auditing. This can happen between partner countries. The exchange programs will help improve audit consistency as auditors will get an opportunity to experience in auditing as done in other countries, some thing they can carry with them.

Another recommendation is the improvement of the equipments used in auditing. As stated by a number of journals, out dated filing systems have been a limitation to quality auditing in some instances. As such, modern and easily retrievable methods like electronic filing can be used. Auditors can also use computers aided programs that are fast and more accurate.


In conclusion, auditing is indeed auditing is a vital activity. It is the activity that keep our companies and corporate on the watch. With quality auditing, companies have saved huge amounts of money through risk preparedness. However, even though the whole auditing process appears simple, there are several factors that affect its quality. Most of these factors can be eliminated by the measures and dedication as they are due to human error (Chan 2004).

Reference List

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