In recent years there have been tremendous changes in the auditing and assurance services profession. There are three major changes that require specific comment. First, the auditing profession has identified that financial report auditing is a mature product and therefore does not have the growth prospects of other services generally offered by the accounting profession. This flattening in demand for audit services has at the same time been accompanied by a growing demand by various groups for various levels of assurance other than the high level normally associated with audit, and for assurance on different products other than an entity's financial report. This development creates an opportunity for auditing professionals to use their acknowledged skills and reputation for competence, objectivity and independence as a means of promoting themselves as the most appropriate providers of high quality assurance services.

This book, the first edition of Auditing and Assurance Services in Australia, recognises the expanding role of the auditing profession in society. While recognising this expanding role, the book continues to emphasise the process by which assurance is provided for financial report audits. Although these new assurance services are likely to become a major revenue stream for public accounting firms in the future, it must be remembered that financial report audits are still the cornerstone of the auditing and assurance services profession. Although a mature product, audits will continue to represent a major ongoing source of revenue for the public accounting firms and most, if not all, of the students moving into the auditing and assurance services profession will have continuing involvement with this type of service.

The second major change is the culmination of recent changes that have occurred in the audit and assurance services methodologies. The major firms have moved their audit method- ologies away from a financial risk emphasis to more of what we have termed a strategic business risk methodology. While aspects of this methodology were previously contained in the inherent risk assessment, it is now emphasised and assessed more explicitly in practice. The theory behind the change is to move the audit to more of a 'top down' approach, where the auditor gains a greater understanding of management's current and future business strategy, core business processes, key performance indicators and associated risks and controls in place. The 'top down' approach involves the auditor comparing the expectations developed that are based on this assessment with the performance and position reflected in the financial report. This can be contrasted with the financial risk approach, where the auditor assesses inherent, control and detection risk, and then undertakes testing within transaction or business cycles and from these samples infers back to the population-a 'bottom up' approach. This book outlines and balances the evidence-gathering approaches contained in the strategic business risk audit with evidence-gathering procedures still used under the financial risk audit.

The third major change in practice covers the increased changes in technology, including the extraordinary growth of electronic commerce, which have impacted both business and audit processes. We are now in an information age, where customers are demanding information, services and products immediately.

These three developments are interrelated. The new strategic business risk approach is also expected to lead to increased identification of assurance services opportunities, such as strategic I i i i risk identification and analysis of business processes. Business initiatives such as electronic commerce have emphasised the importance of assessing strategic business risks, as there are strategic risks associated with the decision to move, or not to move, into this area. This is also an area where there are opportunities for new assurance services. Auditing and Assurance Services in Australia attempts to reflect the impact of these three major developments on the auditing and assurance services profession in Australia.

Auditing and Assurance Services in Australia is divided into five parts:

1. The Auditing and Assurance Services Profession
2. Planning and Risk
3. Procedures for Collecting Evidence
4. Completion and Reporting
5. Other Assurance Services

This part of the textbook introduces the concepts of auditing and assurance services. It covers the relationship between auditing and assurance services, and outlines recent developments arising from the International Auditing Practices Committee's (IAPC) proposed assurance framework. It also outlines the major influences in society that give rise to a demand for auditing and assurance services. This part also considers other influences on the environment associated with assurance service providers, including the internationalisation of auditing, the development of industry specialisations by audit firms, the roles played by the corporate governance structure within organisations and the ethical rules and ethical decision-making models associated with the auditing profession. The uncertainty of the extent of the assurance service provider's exposure to liability and attempts to limit that liability are also discussed.

Part 2 explains the importance of the concepts of planning and risk identification. This is done primarily within the structure of the financial report audit, although the concepts and processes could be extended to other assurance services. As well as providing a framework for the planning stage in Chapter 5, the various chapters take the reader into an assessment of audit and strategic business risk (Chapter 6) inherent risk (Chapter 7) and control risk (Chapter 8). The important concepts of relevant financial report assertions, materiality and analytical procedures are also dealt with in detail in these chapters.

Part 3 covers the major evidence-gathering procedures of the assurance services engagements. Chapter 9 covers tests of transactions, incorporating tests of controls for the control risk assessment and substantive tests of transactions for the detection risk assessment. Chapter 10 covers tests of account balances. Chapter 11 explains the specialised considerations associated with the use of sampling as a form of evidence gathering. Although most of the computer information systems (CIS) information is incorporated throughout the text, Chapter 12 is a separate chapter dealing with specific evidence-gathering techniques in a CIS environment and advanced issues associated with CIS.

Part 4 covers the completion and communication stages of the assurance services engagement. Chapter 13 deals with the general procedures and related matters dealt with near the completion of the engagement. Chapter 14 covers the standard financial report audit report and the various ways in which it can be modified or qualified, as well as the reporting mechanisms for other assurance services, and other mechanisms of communicating with report users.

Part 5 covers assurance services other than those directly associated with a financial report audit. Chapter 15 outlines assurance services that are currently being undertaken or are being considered by the assurance services profession. Chapter 16 deals with internal audit, including the comparison of the new internal audit approach (incorporating more of a business strategy approach) with more traditional internal audit approaches. Chapter 17 covers assurance services in the public sector, explaining the concepts of accountability and audit mandates and the phases of a performance audit.

Auditing and Assurance Services in Australia has a number of key distinguishing features:

We would like to express our appreciation to all those individuals who made contributions to this book.

First, our thanks to the following reviewers who have enriched our book with their com- ments and suggestions:

Tracie Arkley-Smith, Charles Sturt University

Ross Bloore, Bond University

Rod Johnson, Deakin University

Christine Jubb, University of Melbourne

Christopher Kelly, Deakin University

Peter Roebuck, University of New South Wales

Phillip Ross, Macquarie University

Margo Wade, University of Canberra

Ming Wei Zhang, Monash University

We gratefully acknowledge the permission of the Institute of Chartered Accountants in Australia and CPA Australia to quote from auditing standards and associated professional pronouncements. We acknowledged permission given by the Institute to use material from its Professional Year Programme. In addition, we thank the American Institute of Certified Public Accountants, the Canadian Institute of Chartered Accountants, the Chartered Institute of Management Accountants and the Institute of Internal Auditors for permission to use material from their professional examinations. We especially would like to thank Greg Pound for his kind words in the foreword.

Our thanks to the staff at McGraw-Hill for all their assistance, in particular Amanda Phillips, Karolina Kocalevski, Jae Chung, Kara Rickson, Jennifer Speirs and Jennifer Coombs. We also express our gratitude for the assistance of Bibi Moore and Jan Ottrey.

Finally, our sincere thanks to our families and colleagues, without whose patience and understanding this book would not have been possible.

Roger Simnett