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Towards a conceptual framework for

auditing
a a
Michael J. Pratt & Karen Van Peursem
a
University of Waikato , New Zealand
Published online: 28 Jul 2006.

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framework for auditing, Accounting Education: an international journal, 2:1, 11-32, DOI:
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 Accounting Education 2 (l), 11-32 (1993)

Towards a conceptual framework for auditing

l
M I C H A E L J. P R A T T and K A R E N VAN P E U R S E M
University of Waikato, New Zealand

Received October 1991

Revised July 1992
Accepted July 1992

l Abstract
'Towards a conceptual framework for auditing' suggests a conceptual framework, which it is hoped
may help in the teaching and understanding of external attest auditing. Briloff's (1986) view that
'as concern for ecology and the wellbeing of consumers in posterity intensifies, this responsibility
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(accountability) will extend to the total society and environment' is taken as the philosophical
departure point for the conceptual framework.
The paucity of attempts to develop a unifying theory of auditing is noted, and a brief history of
developments is traced commencing with Mautz and Sharaf in 1961. Flint's 1988 work (The
Philosophy and Principles of Auditing) is adopted and developed. Each of Flint's concepts is examined
in some detail to consider its significance in the conceptual framework and its implications for audit
practice. Reasons for changes from earlier frameworks are offered.
In order to illustrate the effectiveness of the framework as an holistic tool of analysis, the concepts
identified are then related to the Auditing Standards and Guidelines of our national professional
accounting association, the New Zealand Society of Accountants (NZSA). Whilst considerable
correlation is noted, some inconsistencies are also identified. It is suggested that the standards and
guidelines may not have derived from any philosophical analysis and that the inconsistencies between
the concepts and the standards appear to have resulted from a lack of a clear theory as to what
constitutes a standard and what constitutes a guideline; higher and lower order ideas would appear
to fall somewhat indiscriminately in both. It is noted that this analysis may be repeated in respect
of the auditing standards of any professional organization.
It is concluded that the application of these concepts can lead to more informed discussion of
some of the controversial issues that face the auditing profession at this time, and to an holistic
understanding of the discipline of auditing as well as of professional audit promulgations. It is
recommended that standard setters should give thought to the adoption of a more holistic approach
to standard setting, grounded in a conceptual framework, and that auditing educators should adopt
such a framework in order to assist students towards an understanding of the role and process of
auditing and away from the memorizing of techniques.

1 Keywords: audit, philosophy, concepts, framework, theory, standards, education, New Zealand

Introduction
This paper gestures towards a conceptual framework, which it is hoped may help in the
teaching and understanding of auditing. Auditing has developed in a very practical way
over the last 3,000 years, but it is only in the last 30 years that much consideration has
been given to the discipline's underlying theoretical foundations. In 1961 the first serious
attempt to develop a philosophy of auditing was made by Mautz and Sharaf. A significant
0963-9284 0 1993 Chapman & Hall
 12 Pratt and Van Peursem

additional contribution was made in 1973, when the American Accounting Association
l
published a statement of basic auditing concepts. In 1972, 1982 and 1986 Professor Tom
Lee contributed further thoughts on concepts in the three editions of his book Company
Auditing. It is only comparatively recently (eg. New Zealand 1973, UK 1980) that
professional auditing bodies have formalized auditing standards. It is the argument of this
paper that professional standards appear to have just codified extant practice, without
apparent regard for an overall conceptual framework or philosophy. This paper compares
the work of Mautz and Sharaf and Flint, and develops Flint's conceptual framework by
eliminating internal inconsistencies and adding new or changed concepts reflecting recent
theoretical developments. No attempt is made here to induce a conceptual framework from
current practice since such a positive approach would merely codify existing practice
without necessarily challenging the underlying assumptions.
Why do we need a philosophy or conceptual framework? Mautz and Sharaf (1961, p. 4)
explained it this way:
1. Philosophy gets back to first principles, to the rationale behind the actions and thoughts
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which tend to be taken for granted.

2. Philosophy is concerned with the systematic organization of knowledge in such a way
that it becomes at once more useful and less likely to be self contradictory.
3. Philosophy provides a basis whereby social relatonships may be moulded and under-
stood. 1
We believe that a philosophical approach to auditing can increase public confidence in
the audit's function and effectiveness by providing a systematic organisation of auditing
knowledge and minimizing internal inconsistencies. Limperg (1985) explained that:
The (audit) function is rooted in the confidence that the society places in the effectiveness of
the audit and in the opinion of the accountant. This confidence is therefore a condition for
the existence of that function; if the confidence is betrayed, the function, too, is destroyed,
since it becomes useless . . . he must perform the work necessary to justify the confidence in
his audit and in his opinion (pp. 16-17). l
This paper proffers a conceptual framework which we believe can provide a greater
understanding of how the elements of the auditing process contribute to the whole. This
can contribute to the rigour and coherence of educational programmes, as well as to the
development of auditing standards and guidelines. Our experience suggests that one of the
major difficulties in the teaching and learning of auditing lies in developing an understand-
ing of the relatedness of the various elements of the curriculum. Presentation of the
curriculum based around a conceptual framework can facilitate such an understanding. In
order to illustrate the effectiveness of our framework as an holistic tool of analysis, the
identified concepts are compared with the Auditing Standards and Guidelines of our
national professional accounting association, the New Zealand Society of Accountants
(NZSA). Whilst considerable correlation is noted, some inconsistencies are also identified.

Audit and Accountability

/I
'Accountability denotes the responsibility to others that one or more persons have for their I
behaviour' (Rosenfield, 1974, p. 125). Wallace (1985, p. 19) explains accountability
(stewardship) in a narrow sense of contingent contracts between agents and principals -
 Towards a conceptual framework for auditing 13
agency theory. 'Incentives clearly exist for agents to provide financial statements to
facilitate monitoring activities by principals' (p. 19). It is accepted that agency theory can
provide an explanation of the demand for audit services in unregulated markets. However,
as Briloff (1986) explains:
When we consider the total environment in which these corporate entities exist, and to which
they relate, we see them as having compelling responsibilities to a broad spectrum of 'publics'.
This nexus of publics includes: management, shareholders, labor, government, customers, and
consumers, as well as neighbors in the communities in which the corporation operates. Further,
as concern for ecology and the well-being of consumers and posterity intensifies, this
responsibility will extend to the total society and environment. And because of the multi-
national character of our major corporate entities, this responsibility and related accountability
must be viewed on a universal canvas (p. 4).
Flint (1971) also adopts a social concept of audit and explains the auditor's broad and
changing role as follows:
In a democratic society power is not absolute and those who exercise it are accountable. The
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power must be exercised in the public interest and some system of surveillance must be operated
to monitor the quality of the report on accountability. The character of accountability does
not wholly lend itself to precise definition and is of an evolving nature adjusting to changes
in social, political and economic thought and in the ethics and standards of society.
Gilling (1978) developed Flint's concept and explained the auditor's role as that of an
agent of social control defined by binding legal and professional norms which attach to
the auditor's status (p. 32). Porter (1988, p. 92) expands on the earlier work of Flint and
Gilling and explains the role of the external auditor in society as follows:
The role of the external auditor comprises the attitudes, values and behaviour ascribed to the
social position occupied by auditors, by individuals and groups in society who have an
identifiable relationship with that social position. The auditor's social position is that of a
professional acting as an instrument of social control within the accountability process required
of economic entities. Accountability is imposed on these organisations as a check on the power
accorded them by society through the provision of financial, human and other non-financial
resources. It is the function of external auditors to monitor the accountability reports provided
by the managers of these economic enterprises.
This explanation of the role of the auditor is used as a philosophical starting point for the
development of this conceptual framework. The value judgement implicit in acknowledging
all society participants as accountees is acknowledged, as is the potential criticism. On the
one hand it may be criticized as patronizing by those who follow Friedman (1966) in
believing in the power of the market to create equitable outcomes. On the other hand it
may be criticized as naive by those critical accountants who see any regulatory accounting
or auditing framework as likely to be captured by vested interest groups within society (e.g.
Sikka et al. 1989) or, more extremely, as being part of the capitalist system whereby
privileged groups within society maintain power and dominate others (Tinker, 1991). We
acknowledge each of these perspectives as having truth value, in that regulatory groups
can be captured, and capitalism can lead to privilege. However, we believe that democratic-
ally controlled regulation which provides for the free flow of appropriate information to
all stakeholders can minimize these risks. Pratt (1990, Chapter 2) offers a comprehensive
justification of the social accountability perspective. Our framework is acknowledged as
being idealistic; it is deliberately normative based on deduction from underlying postulates.
 14 Pratt and Van Peursem
It is believed that a conceptual framework can be useful to link the philosophy behind
the auditing function into a coherent whole, which is comprehensive and has internal
consistency, and which can be used to assist the understanding or establishment of the
rules and procedures which govern its conduct. A comprehensive framework should
provide a perspective of the auditor's role and a basis from which fundamental problems
facing the auditing profession can be considered.
Flint's (1988) accountability framework provided a quantum advancement on the work
of Mautz and Sharaf in the Philosophy and Principles of Auditing. This paper highlights
the developments achieved by Mautz and Sharaf (1961) and Flint (1988): and builds on
the work of Flint to develop a conceptual framework which is also consistent with the view
of the auditor as an instrument of social control. The Auditing Standards of the New
Zealand Society of Accountants are compared with the Conceptual Framework in order
to test the standards' internal consistency and thereby to illustrate one practical application
of a philosophy-based conceptual framework.
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Postulates of auditing
Before a theoretical framework can be established, certain postulates or axioms must be
accepted as a foundation on which to build. Mautz and Sharaf (1961, p. 37) explained that
postulates are:
1. Essential to development of any intellectual discipline.
2. Assumptions that do not lend themselves to direct verification.
3. A basis for inference.
4. A foundation for erection of any theoretical structure.
5. Susceptible to challenge in the light of later advancement of knowledge.
In any theoretical work, postulates should be internally consistent and they should be
sufficient to support the development of subsequent concepts. Postulates represent a
starting point for resolving problems and a basis for deductive reasoning. Therefore, it is
necessary that postulates be made explicit and accepted as a priori. Mautz and Sharaf
(1961, pp. 37-41) established their postulates from a 'careful study of the nature and
activities of auditing' (p. 41). They assert that postulates can only be formulated tentatively
as they do not lend themselves to direct verification. As cornerstones of theory and practice,
postulates are the bedrock assumptions underlying all understandings. Individual postulates
may be regarded as invalid and be disregarded, others may take their place as all are
questioned and debated over time.
Mautz and Sharaf (1961, p. 42) suggest eight tentative postulates of auditing, whereas
Flint (1988 p. 21-23) suggests seven significantly different basic postulates. This lack of
similarity may be due in part to Flint's broader view of audit's role in society than that
which Mautz and Sharaf may have had in mind (see Mautz's forward to Flint, 1988). In
addition, the pressures on audit have changed over time and some of the Mautz and Sharaf
postulates either no longer hold true for this reason, or are of less consequence. They are,
however, part of the evolution of a theory of auditing. Table 1 summarizes the postulates
and demonstrates the relationship between the two sets. Flint's work, Philosophy and
Principles of Auditing (1988) represents perhaps the most succinct statement of a philosophy
of auditing derived from a social accountability perspective, and is summarized below,
commencing with a brief commentary on the seven postulates:
 Towards a conceptual framework for auditing 15
1. Auditing can be said to act as an element of social control within the process of
corporate or public accountability (Flint, 1971). The first postulate asserts that without
accountability there can be no audit. We agree, and suggest that without audit there
can be no accountability. This is consistent with our view of the role of the external
auditor and is thus central to our discussion.
2. The second postulate suggests that an audit becomes a necessary part of the process of
securing accountability because of remoteness, complexity and significance. Remoteness
refers to the fact that it is difficult, expensive or logistically impossible for all parties
interested in the accountability of a particular entity to obtain access to relevant data.
Even if such difficulties could be circumvented, the operations of modern business
entities are so complex that specialist knowledge is necessary for the complete
understanding and investigation of the accountability relationship. The scale of many
private and public organizations is such that they have an impact upon the wider social
community as that between directors and shareholders, or between the government and
electors. The greater the significance of the entity to the wider social community, the
greater the significance of accountability and of the audit requirement. This postulate
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is, therefore, fundamental to our development of a conceptual framework and accords

with our view of the role of the auditor.
3. This third postulate identifies independence and freedom from constraint as essential
distinguishing characteristics of an audit. This naturally follows from the second
postulate. In order for all interested parties to have confidence in the audit investigation,
it is clear that the audit must both be independent and be seen to be independent. It
must be objective and free from any bias that could accrue from involvement with the
subject of the audit. In the words of Normanton (1966):
Since the time of Aristotle it has been an accepted principle that state auditors should be free
from direction, influence and intimidation by, and income or reward from, the authorities
and persons whose affairs they are called upon to audit (p. 298).

4. The fourth postulate states that performance of an audit requires that the matter to be
investigated is susceptible to verification by evidence. The only way in which auditors
are able to report and express an opinion is by obtaining sufficient, reliable and
competent evidence. If there is no evidence, the auditor cannot express an opinion.
5. The fifth postulate explains that standards of accountability can be set for those who
are accountable, actual performance can be measured against these standards, and the
process of measurement requires the exercise of special skill and judgement. Flint (1988)
explains:
The social objective of an audit can be achieved only if standards of accountability are
established for each class of organisation and each type of audit (p. 35).

The auditor will naturally have an important influence on the technical aspects of
standards determination. However, since it is maintained that society as a whole benefits
from the accountability relationship, then regulations and standards should be formulated
or at least finalized independently of the auditor. We suggest that society's accountability
expectations are communicated through formal mechanisms such as the judiciary,
Parliament, and legislated auditing standards.
6. The sixth postulate stresses the importance of clear expression and communication of
the meaning, significance and intention of financial and other statements and related
 16 Pratt and Van Peursem

audit reports from the auditor to society. The clear expression of an audit opinion on
accounts which are themselves incomplete, confused or ambiguous, will do nothing to
enhance those accounts, and can only serve to degrade the audit opinion of the auditor
in question and the audit profession in general.
The seventh postulate suggests that an audit produces an economic or social benefit.
Flint (1988) explains that 'financial and other statements and data which are audited
must have an added utility which more than matches the cost' (p. 39).
In many cases the auditors will be able to demonstrate a clear economic benefit by
pointing out waste, inefficiencies, mistakes or fraud which can be prevented from
l
recurring, or perhaps even monies which may be recovered. Less tangibly, auditors can
demonstrate an economic benefit deriving from the incorporation of systems to prevent
such errors or frauds from occurring. The social benefit is largely intangible and relates
to the reduction of risk to the participants in the whole economic system through
ensuring that individuals and entities are held properly accountable for those resources
with which they are entrusted.
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We also wish to highlight the relationship between three of the postulates and the role of
the auditor perspective which we (and Flint) adopt. Flint's postulates 1 (Relationship of
Accountability exists) and 7 (Economic or Social benefit) are clearly grounded in a social
accountability perspective. The fact that the subject matter (of audit) is remote, complex
and significant (postulate 2) suggests that the auditor has a critical role to play within the
accountability relationship. These postulates, therefore, permeate the tone and content of
all concepts, standards and guidelines which logically follow from them. Other postulates
are particularly useful in providing a philosophical foundation for specific concepts which
we have adopted from Flint or developed in a new way. These links are illustrated in
Fig. 1 and described in the following pages. The postulates must be taken as given; if
the reader totally rejects any of them, then the foundations of the suggested conceptual
framework will be shaken.

Concepts of auditing
Eubank (1932) explains that:
The term concept thus involves a combination of two things: on the content side it stands for
l
a distinctive idea; on the linguistic side it stands for the distinctive term which is the verbal
symbol for the idea (p. 28).
Mautz and Sharaf (1961) give a similar explanation:
Concepts are . . . abstracted forms derived from observation and experience, generalized ideas
l
which help us to see similarities and differences and to understand better the subject matter
in question. Without concepts, the field of study remains but a mass of unrelated observation.
It is in the process of drawing generalisations out of a mass of observations or perceptions
that conceptual thinking makes a contribution to the organisation of any field of knowledge. . . .
Concepts provide a basis for advancement in the field of knowledge by facilitating communica-
tion about it and its problems. Without agreement upon concepts communication is
impossible (p. 54).
Mautz and Sharaf (1961, p. 67) identified five primary concepts of auditing - evidence; due
audit care; fair presentation; independence; and ethical conduct. They invited subsequent
 Towards a conceptual framework for auditing
Table l . Postulates of auditing, comparisons of Mautz and Sharaf and Flint
Mautz and Sharaf
l. Verifiability
2. No conflict of interest between
the auditor and management
3. Financial statements are free
from collusion and unusual
irregularities
4. Internal control eliminates the
probability of irregularities
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5. Consistent application of GAAP
results in fair presentation
6. What has held true in the past
will hold true in the future unless
there is evidence to the contrary
7. The auditor acts exclusively in
the capacity of an auditor
- p
" See Goldman A. and B. Barler, The Auditor - Firm Conflict of Interests: IMS Implications for Independence,
The Accounting Revlew, October 1974.
Flint Comments
4. The subject matter of audit is
susceptible to verification by
evidence
- Given the wider social role of audit-
ing implicit in the social account-
ability paradigm, conflict of interest
is quite possiblea
- The auditor would no longer be
entitled to make this assumption.
It is expected that material fraud
and irregularities in financial
statements will be identified
The strongest form possible for this
assertion now would be that
internal control reduces the prob-
ability of irregularities
- Consistent application of GAAP
would not now be seen of itself as
sufficient to ensure fair presentation
- Auditors will place reliance on
trends and known relationships
within the financial statements but
perhaps not to the extent indicated
in this assertion
3. Independence of status and free-
dom for investigatory and and
reporting constraints are charac-
teristics of auditing
1. Relationship of accountability
exists
2. Subject matter of accountability
is too remote, complex and/or
significant for the discharge of
accountability without the audit
process
5. Standards of accountability can
be set, actual conduct can be
measured and compared with
those standards and the process
of measurement requires special
skill and judgement
6. The meaning, significance and
construction of financial and
other statements which are audit-
ing are sufficiently clear that the
credibility given by the audit can
be clearly expressed and
communicated
7. An audit produces an economic
or social benefit
p p -
 18 Pratt and Van Peursem
writers to add to their conceptual framework to provide, for the discipline of auditing, a
complete range of useful concepts which have been subjected to the process of rigorous
philosophical examination. Flint (1988) has made a serious attempt to develop a
comprehensive conceptual framework of auditing. He expands Mautz and Sharaf's lists of
concepts to nine fundamental concepts organized into three categories. Table 2 demon-
strates the relationship between Mautz and Sharaf's concepts and those of Flint (1988)
and ourselves.
Four of Mautz and Sharaf's concepts are subsumed within Flint's framework. One
exception is 'fair presentation' which Flint excluded. Fair presentation of financial
statements is a concept that lies within the discipline of financial reporting and lies at the
heart of accountability. It is important to, but not part of, the process of auditing. Flint
categorizes the fundamental concepts into three distinct groups - each of which is essential
to the satisfactory fulfilment of the auditor's role. He considers that the auditor must have,
and be seen to have, the necessary authority to add credibility to the financial statements.
The process by which the audit is conducted must be technically capable of meeting
the audit objectives, and the result must be communicated effectively to accountees of
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the organization. Finally the process must be performed to visible and measureable
quality assurance standards which respond to the changes in the accountability relationship
over time. Flint's conceptual framework may be developed in a number of respects.
Modifications to his concepts and categories, which we offer as improvements on his
framework, are found in the third column of Table 2 and are discussed in the remainder
of this paper.

Table 2. Concepts of auditing

Mautz and Sharaf 1961 Flint 1988 Prattl Van Peursem 1993

Authority Credibility and ethics

- Competence Competence
Independence Independence Audit judgement
Ethical conduct Ethics Independence

Process Process
- Risk
Evidence Evidence Evidence
Materiality Materiality

Communication
Reporting Reporting

Standards Performance
Standards Standards
Due audit care Due care and negligence Due care
- Quality control Quality control
Fair presentation
 Towards a conceptual framework for auditing 19
Credibility and ethics
The phrase 'Credibility and Ethics' is substituted for Flint's term 'Authority', in order to
represent more precisely the characteristics expected of the independent auditor. Flint
(1988) states:

The auditor's opinion is no more than an opinion, but it must be believed to be an informed
opinion honestly held. It is to the source of that authority and confidence and belief in the
capacity of the auditors to give an honest, informed opinion that we must now look (p. 47).

We concur, and conclude that auditors, to retain their professional status, must be
perceived to exercise the following personal characteristics:

The competence, knowledge and skills to carry out an effective audit;

The independence of mind necessary to the development of unbiased judgements;
Reasoned judgement as to that which would be of material interest to the accountee
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and as to the many other aspects involved in the audit process.

It is noted that we have added 'judgement' into this concept category, and have eliminated
'ethics'. An explanation for these changes is given below.

All professional accounting bodies establish rules of professional conduct or professional

ethics designed to protect and enhance the reputation and independence of the individual
member and of the composite professional organization. Both Mautz and Sharaf (1961),
and Flint (1988) designate 'ethics' as one of their fundamental concepts. Flint (1988) cites
the principal matters normally included within an ethical code as follows:

1. Professional competence;
2. Professional independence and disqualifying circumstances and relationships;
3. Confidentiality;
4. Incompatible activities or occupations;
5. Obtaining professional work, publicity and advertising (p. 92).

Of the above, 'Competence' and 'Independence' are included within concepts described
previously in this paper. We suggest that 'Incompatible activities' can be closely related
to independence as well because there is an implicit danger that such activities may lead
to the appearance of a lack of independence with regard to professional services provided.
'Confidentiality' is seen as being inappropriate for an accountability relationship. It is not
the responsibility of the auditor to protect the client, but rather to protect society from
erroneous information provided by the client. It is noted, in fact, that new regulations
relating to the disclosure to regulatory authorities of certain matters discovered during the
audit of financial institutions, challenge this confidentiality practice; (see for example the
New Zealand Financial Services Act, 1986). Accordingly, 'Confidentiality' is excluded from
our social accountability based auditing conceptual framework, although we acknowledge
a role for it in professional (self-protecting) rules.
We suggest that 'obtaining professional work, publicity and advertising' also relates to
'independence' and 'due care' in as much as cut throat or cut-rate self-promotion can
 Pratt and Van Peursem
compromise the professional relationship with clients. It can also place pressures upon
members to reduce the quality of their work. We therefore conclude that all of the ethical
concepts are subsumed within existing concepts of the framework. In addition, there
appears to be no clear link between any of the postulates and 'ethics' as a separate topic.
We have therefore chosen to depart from Mautz and Sharaf and Flint, and to omit a
separate recognition for 'ethics' in our conceptual framework, and to add 'ethics' to
'credibility' in a description of the broader category.

Auditor credibility - competence

To achieve stakeholders' confidence, auditors must have the personal characteristics that
lend credibility to the audit. It follows from postulate 2 that auditors must be sufficiently
competent and possessed of the special skill and judgement necessary to handle the complex
subject matter of accountability statements. Audit competence necessitates technical
knowledge, training and experience. The investigative process of auditing involves the
exercise of judgement, and requires systematic thinking, and skills in oral and written
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communication. The audit process demands a broad range of skills including logical
deduction, mathematics, behavioural and organizational sciences, law, sociology, as well
as the core disciplines of auditing and accounting. Auditing and accounting have developed
as parallel disciplines in that the primary focus of accountability traditionally has been
financial accountability.

Auditor credibility - audit judgement

Judgement, in our view, lies at the heart of auditing and its inclusion within the conceptual
framework is called for. Evaluating the complexity of a business's financial system (postulate
2), and evaluating evidence against standards and societal expectations (postulate 5),
demands that auditors draw on their experience and reasoning continuously throughout
the audit process. Judgement is particularly important during the planning of an
engagement, in evaluating internal control, assessing materiality, and in determining an
appropriate audit opinion. It is suggested that auditors are dependent for their credibility
on public and client confidence in their ability to exercise professional auditing judgement
in an independent manner.
A considerable body of research (see for example Tversky and Kahneman, 1974; Gibbins,
1984; Colbert, 1988; Butt and Campbell, 1989; Beach and Frederickson, 1989; Johnson et
al. 1989) now exists in relation to factors which influence auditor judgement. These factors
include the education, previous experience and approach to problem solving of the auditor,
the existence of auditing standards and guidelines, auditor biases, and the policies of the
audit firm itself. Gibbins (1984) provides a comprehensive model of the factors likely to
influence auditor judgement together with a consideration of biases and the decision
making process. Frequent references to judgement are made throughout auditing standards
and guidelines. All of these factors point to the fundamental importance of auditor
judgement and we have, for these reasons, brought it within the conceptual framework as
a personal characteristic which lends credibility to the auditor. However, we acknowledge
that this represents a departure from previous authors, and may be contestable. We suggest
that the absence of judgement from a conceptual framework will tend to marginalize the
importance of judgement in the audit process, and increase the risk of over-emphasis on
technical issues at the expense of judgement.
 Towards a conceptual framework for auditing 21

Auditor credibility - independence

Both Mautz and Sharaf (1961) and Flint (1988) emphasize the concept of independence,
which signifies 'at arm's length', or freedom from bias, Flint's postulate 3. We concur that
the audit opinion will only have credibility if the persons conducting it demonstrably have
no vested interest in any particular outcome of the accountability process. Flint (1988)
explains:
Auditors must be recognised as being without bias or partiality towards any interest. [Without]
independence the audit would be of little value to the individuals to whom accountability was
due since there could be little confidence that their opinion added to what was already available
( P 57).
Chief Justice Warren Burger emphasizes' 'Public faith in the reliability of corporations'
financial statements depends upon the public perception of the outside auditor as an
independent financial analyst'. There is a wealth of literature on independence. The reader
is referred to Firth (1980), Shockley (1981), Knapp (1982), Simunic (1984), and Palmrose
(1987) for a summary.
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Process
The auditing profession derives its credibility from society's perception of auditors'
application of the concepts of competence, judgement and independence. Perceptions of
credibility will ultimately be undermined if the audit process itself is not conducted
effectively. Within the audit process we can identify three separable concepts which are
themselves elements of a total theory of auditing. These three concepts of 'audit risk',
'audit evidence' and 'audit materiality' are discussed below. This represents a departure
from Flint who includes only 'evidence' and 'materiality' in his framework, and from Mautz
and Sharaf who include only 'evidence'. We discuss below the rationale for including 'risk'
in this category.
Audit process - audit risk
Audit risk is the risk that the auditor may express an inappropriate opinion on the financial
statements under review. Elements of audit risk include inherent risk (the risk that a
material misstatement exists); control risk (the risk that the client's internal control system
will fail to prevent or detect material error); sampling risk (the risk that the auditor will
fail to select for testing those items containing material error) and quality control risk (the
risk that the auditor's procedures are inappropriately designed and/or executed and that
therefore material error remains undetected). Accountees are likely to be concerned with the
potential impact of material error or omission which remains undiscovered by the auditor
(audit risk), and which would lead them to erroneous conclusions. Audit risk is seen as
being a fundamental concept within the audit process, since risk is the reciprocal of the
required confidence, and the required confidence will in turn indicate the nature and extent
of required evidence. A thorough analysis of all of the elements of audit risk can provide
the framework for the development of a detailed audit plan, and will assist the auditor in
the determination of the nature, extent and timing of complex audit testing (postulate 2)
necessary to acquire appropriate evidence (postulate 4). Risk therefore provides the

United States v. Arthur Young and Co. ( 5 2 USLW 4355, March 1984).
 22 Pratt and Van Peursem

conceptual starting point for planning the audit process, and is therefore considered to be
an essential element of our conceptual framework for auditing. Mock and Washington
(1989) offer a thorough analysis of 'Risk Concepts and Risk Assessment in Auditing'.

Audit process - audit evidence

The auditor's ability to express an opinion on the truth and fairness of financial statements
will depend upon the accumulation of sufficient, relevant and reliable evidence. This is a
fundamental postulate of auditing shared by Mautz and Sharaf and Flint as discussed
earlier. If the subject matter of the audit is incapable of being verified by evidence, the
auditor cannot express an opinion. When the auditor is unable to obtain all of the
information and explanations which s/he deems necessary for the purposes of the audit, it
will be necessary to issue a disclaimed report (i.e. to decline to express an opinion).
Flint's (1988) final postulate was that 'an audit produces an economic or social benefit'.
This means that the auditor has a duty to consider the cost of obtaining evidence in relation
to the economic or social benefit derived from its availability. The additional confidence
available from incremental evidence must be matched against its marginal cost and further
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evidence should not be obtained if the marginal cost is greater than the marginal utility.
In practice, economic pressures will be brought to bear on the auditor to prevent the
performance of excessive work in that the client may come to regard the audit fee as
excessive, and seek to change auditors as a result. A further implication of this important
postulate is that the auditor has a duty to obtain the evidence using the most cost effective
means. A significant tension exists here, for the client will naturally be seeking the most
economic audit possible, but societal benefits may be potentially available from audit
evidence (for example, in relation to environmental concerns) which could be hard to
quantify in a formal cost benefit analysis (p. 105).
Mautz and Sharaf (1961, p. 85) sum up the relationship between costs and quality of
evidence:

The difference between compelling evidence and very persuasive evidence may not be
sufficiently important to warrant the added cost of obtaining the former. On the other hand,
other things being equal, compelling evidence is much the more desirable.

The degree of audit confidence will be a function of the persuasiveness of the audit evidence.
In contrast to legal evidence, auditors are not seeking to prove or disprove anything in
absolute terms; rather they will be seeking sufficient, relevant, reliable, competent evidence
upon which to base an opinion. Evidence is clearly a concept of the audit process.

Audit process - materiality

Materiality is a fundamental concept of auditing which will influence the nature, extent
and timing of audit work and the extent to which auditors call for rectification of
misstatement within the financial statements, or decide to qualify their opinion on the
grounds of significant misstatement. Materiality equates to significance, but the term has
particular implications within the auditing context. The concept of materiality affects the
whole audit process from planning, through evidence gathering and evaluation, to
reporting. The decision as to whether an event or item is or is not material will be
determined by the auditor's judgement. Judgement and materiality are closely interrelated
with materiality being dependent upon audit judgement.
 Towards a conceptual framework for auditing 23
Materiality is also closely related to the concept of evidence. Auditors will plan the
nature, extent and timing of their acquisition of audit evidence (postulate 4), dependent
in part upon their judgement as to what constitutes the most material or significant items
under review. Flint (1988) explains the concept of materiality succinctly:
A statement, fact, item, data or information is material in accounting if, giving full consideration
to these surrounding circumstances as they exist at the time, it is of such a nature that its
disclosure (or omission), its misstatement, or the method of treating it, would be likely to
l influence the decision or action of the persons for whom the statement, etc. is prepared (p. 129).

Flint makes it clear that the auditor's selection of a materiality dollar amount, or of
appropriate tests and procedures should be made with the accountability relationship in
mind.

l Communication
Communication - Reporting is added as a new category to the conceptual framework
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because it is seen as fundamental to the auditing role, and as being separate, from (although
related to) the audit process. Flint's postulate 6 gives meaning to our suggested concept
of 'Audit Communication - Reporting' as a richer notion than that implied by the narrow
technical connotation of Flint's framework. Reporting has a uni-directional connotation
whereas Communication implies interaction and a recognition on the part of the initiator
of the communication to be mindful of the meaning of the message to the recipient (a topic
referred to in postulate 6). Holt and Moizer (1990) provide an insightful analysis of 'The
Meaning of Audit Reports'.

Audit communication - reporting

The ultimate expression of the auditor's responsibility (postulate 1) is a report stating the
opinion of the auditor with regard to the financial statements under review. The audit
report represents the combination of the auditor's effort and judgement in relation to an
entire audit engagement. As a consequence, appropriate wording is critical, to ensure that
the report communicates completely, explicitly, precisely, unambiguously, accurately and
effectively, the auditor's opinion on the matters under review. The report and underlying
work should respond to accountees' expectations for the audit, and exists as the primary2
means of communicating the auditor's message to accountees.
A standard wording for audit reports has evolved in the English speaking accounting
world. The terminology used is cryptic to say the least, and words take on a quasi-legal
meaning. This is necessary, as the audit report can have significant legal consequences for
all parties concerned, not the least being the possibility of the auditors being sued for
failing to discharge their accountability duties properly. This necessity to be precise in the
use of language is in some senses at odds with the necessity to explain adequately to lay
readers the full nature and extent of the audit work performed and any reservations that
the auditor may have about the truth and fairness of the financial statements under review.
The theory of the role of the auditor suggests that, as auditing is an element of social
control, the audit report should be available to society at large. At the moment in New
Zealand only shareholders of public companies are legally entitled to receive the financial

The auditors can also orally present information to (some) accountees at the company's annual general meeting.
 24 Pratt and Van Peursem
statements and associated audit opinions, but this is regarded as anachronistic, and
legislation is expected eventually to catch up with accountability theory and society's
expectations. A social accountability perspective holds that all stakeholders should be
legally entitled to audited accountability information.

Performance
To fulfil their social role within the process of accountability, auditing and the auditor
~
l

l
must be credible, the process of auditing must be properly conducted, and there must be
effective communication between the accountor (the client and auditors) and the accountees
society). The auditor attempts to convey a message to the accountee by means of the audit
report. How may the public convey their expectations to the auditor in a complex
enviroment which, as Flint (1988) indicates, is undergoing continuous change? This should
be accomplished through a concept category which Flint describes as 'Standards'; this
includes the norms, standards and sanctions which are a basis for establishing responsibility
in law as well as providing a foundation for all-important public confidence in the audit
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process. However, Flint uses the same term 'Standards' as a concept within this category.
To avoid this ambiguity, we have used the term 'Performance' to describe this general
category of concepts. Without Performance, the audit profession runs the risk of losing
the confidence of the society which it serves, and would ultimately lose its status and
privileged positions. We agree with Flint in suggesting that this can only be accomplished
where professional standards, common law (Due Care) and professional review (Quality
Control) exist and respond to ever-changing accountability requirements.

Audit performance - standards of practice

Individual auditors should have regard to generally accepted standards in the conduct of
their auditing engagements. If individual practitioners fail to meet the standards of practice
promulgated by the organized profession, they will fail to discharge their professional
responsibility and may leave themselves exposed to legal action for negligence, although
individual practitioners may, of course, conduct their work to more exacting standards
than those presumed by the profession. The auditor's standards of practice, therefore,
should be based on that level of performance which is necessary to justify the confidence
inspired by the audit.
Just as the individual practitioner has an obligation to meet, at a minimum, the standards
of practice presumed by the auditing profession, so too does the profession have a
responsibility to its members and to society in general to conduct such research and devise
such standards of performance as are likely to meet conceptual standards such as those
outlined by Limperg (1985). This responsibility is dischargeable through the development
and issue of professional standards, guidelines and practice statements. Such publications
provide practice guidance for auditors, information to audit beneficiaries as to the nature
and scope of the audit examination, specifications of generally accepted audit practice, as
well as providing a basis for the education of auditing students. Professional promulgations
and, in particular, auditing standards (which must be complied with by audit practitioners),
will provide a basis for the courts to determine that which constitutes current practice.
Standards do sometimes lag behind developments in auditing theory and techniques, and
plaintiffs in a court of law may seek to prove, by reference to the evidence of expert
practitioners, that actual standards of practice should be more exacting than extant
 Towards a conceptual framework for auditing 25
auditing standards. However, the court will reserve unto itself the right to determine
whether the standards and/or the expert testimony as to current practice are appropriate
in relation to the circumstances of the given case.

,
Consequently the auditing standards should not be seen as overriding audit judgement;
rather they will provide guidelines against which judgement can be exercised. Through the
I process of standard setting, the organized auditing profession will seek to enhance the
1 exercise of professionaljudgement by its members through the promulgation of increasingly
exacting standards. As a consequence, the standard setting process should be dynamic
and continuous. Standards of practice must not be seen as a description of an appropriate
set of techniques; rather they should emanate from a coherent conceptual framework within
which standards can evolve from fundamental concepts and principles.

! Audit performance - due care

The auditor is obliged to perform the audit within acceptable norms of skill and 'due
professional care'. (NZSA, 1992, p. 56). Flint describes this concept as 'Due Care and
Negligence'. We have dropped 'negligence' because it is simply the reciprocal of the
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required concept. The 'due care' requirement is implicit in Flint's postulates 2 and 5 which
refer to the complex nature of accountability and the requirements for responding to
accountees. The concept of due care is outlined here as part of the consideration of the
theory of auditing. A full consideration of the civil and statutory legal liability of the auditor
for failure to apply due care and thus to be guilty of professional negligence is given by Pratt
(1990). Although auditors' rights of inquiry and investigation and their duty to report are
covered in Statute Law in all major English speaking countries, Statute Law offers little
guidance on the standards of care expected of auditors. For this we have to look to case law.
Fundamental principles of due care in the context of auditing were established in the last
century in two fundamental cases:
An auditor is not found to do more than exercise reasonable care and skill in making inquiries
and investigations . . . he must not certify what he does not believe to be true, and he must
take reasonable care and skill before he believes what he certifies is true. What is reasonable
care in any particular case must depend upon the circumstances of that case. (London and
General Bank (No. 2), (1895) 2Ch.272.)
It is the duty of an auditor to bring to bear on the work he has to perform, that skill, care
and caution which a reasonably competent, careful and cautious auditor would use. What is
reasonable skill, care and caution must depend on the particular circumstances of each case.
(Kingston Cotton Mill Co. (No. 2) (1896) 2Ch.279.)
These fundamental principles were re-established in the case of Thomas Gerrard & Son
Ltd., (1967) 2 All ER 525.
Reasonable care and skill remain the fundamental principles, but what constitutes
reasonable care and skill changes over time as the theory, concepts and techniques of
auditing are developed and as the business community itself becomes more complex. In
the Australian case Pacijic Acceptance Corporation Ltd vs. Forsyth & Ors (1970) 92 WN
NSW 29, Moffitt explained:
It is not a question of the courts requiring higher standards because the profession has adopted
higher standards. It is a question of the court applying the law which by its content expects
such reasonable standards as will meet the circumstances of today, including modern
conditions of business and knowledge concerning them.
 26 Pratt and Van Peursem

He goes on to explain:
Standards and practices adopted by the profession to meet current circumstances provide a
sound guide to the court in determining what is reasonable.

The judgement makes it clear, however, that it is the courts which determine reasonable
standards in relation to current business circumstances. S. Moffitt concluded:
If the audit profession or most of them failed to adopt some step which despite their practice
~
l
was reasonably required of them, such failure does not cease to be a breach of duty because 1
all or most of them did the same.
l
On the assumption that the courts will reflect society's view of what is reasonable, it is
incumbent upon the auditing profession to update its practice continually in relation to
advances in auditing theory and techniques and the changing nature of business activity.
It is also incumbent upon practitioners to have regard to the view of the courts as to what
constitutes reasonable care and skill, both from the point of view of limiting the risk of
audit failure and from the point of view of satisfying society's expectations. It should be
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clear that any failure to reach the level of due care and skill expected by society, as
interpreted by the courts, will expose the auditor to charges of negligence (Pratt, 1990,
p. 64).

Audit performance - quality control

The auditor has a professional duty to exercise due care at all times, and to conduct audit
work to a standard that does not betray the legitimate expectations of society. The courts
can impose financial penalties upon auditors who fail to exercise due care and professional
organizations can impose penalties on their own members, the most extreme of which is
expulsion (and therefore loss of livelihood). However, only an internal system of quality
control can provide assurance that standards are maintained. The basis for such a system
should be the formalization of practice policies and procedures in an audit manual, and the
continual review of compliance with such policies and procedures.
The maintenance of a system of quality control both by individual practitioners and the
profession in general is fundamental to the achievement of maintenance of confidence in
the audit process. Quality control should both exist, and be publicly evident. The quality
control system should provide for periodic inspection or review, both of individual
completed engagements and of the practice as a whole. An independent review can offer
society even greater confidence. The concept of 'peer review' is well established in the
United States where all auditors of SEC companies must subject themselves to a process
of peer review by another audit firm with whom they have no association. Practice review
has recently been introduced into New Zealand. Such an approach should inspire a higher
level of confidence, and should offer technical advantages to the reviewed firm.

New Zealand auditing standards and guidelines compared to the conceptual framework
Our proposed conceptual framework consists of postulates, concepts and auditing
~
l

standards and is summarised in Figure 1. In order to test the coherence and usefulness of
the proposed conceptual framework, we now draw on one example and compare the New
Zealand Society of Accountants' Auditing Standards and Guidelines to the conceptual
framework. These promulgations are inherently similar to those of other English speaking
 ROLE OF THE AUDITOR
An instrument of social control within the process of accountability
,

POSTULATES
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1. A relationship of 2. Subject matter remote 3. Independence

accountability exists complex, significant

4. Verifiable by evidence 5. Standards of accountability can 6. Clear expression from 7. Economic or social benefit
be set, measured and profession to society
communicated to auditor

CONCEPTS
A general idea fundamental to the study of auditing

Credibility and ethics of auditor Credibility of process Communication Performance

Competence Independence Judgement Risk Materiality Evidence Reporting Due Standards Quality
care of practice control
L

STANDARDS
L
.
Professional promulgations which identify and formalize the details of a given concept

Fig. 1. Proposed conceptual framework.

 28 Pratt and Van Peursem 1
countries. It will be seen that the analysis highlights inconsistencies and omissions from
the standards, and provides an holistic basis from which recommendations for improve-
~
I
ments can be made. In undertaking our analysis we assume that auditing standards should
be related closely to fundamental auditing concepts. Table 3 provides a complete listing
of New Zealand auditing standards and guidelines and a demonstration of identified l

inconsistencies. It can be seen that the New Zealand Auditing Standards related quite 1
closely to, but are not entirely consistent with the proposed conceptual framework. The
l
same analysis could of course be applied to the auditing standards of any professional body.
I
Auditing Standard (AS) 1 - 'Integrity, objectivity and independence', and AS3 - 'Skills
and competence', relate closely to the ideas subsumed within 'Credibility and ethics -
independence and competence'. Perhaps the need for each of these standards could be
explained in the context of the overall requirement for credibility, but aside from this
there is consistency between concepts and standards. AS2 - 'Confidentiality', is not a I
required auditing concept under a social accountability framework, and should be isolated
from standards that respond to the public need. Confidentiality practice may be more
appropriately described in a professional practice code.
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AS4 - 'Work performed by assistants', and AS5 - 'Work performed by other auditors
and experts', are subsumed in our framework under the Concept categories of 'Process'
and 'Performance', in particular, within 'Audit evidence' and 'Due care', 'Quality control'
and 'Standards of practice'. These are seen as fundamental concepts, whereas AS4 and
AS5 appear rather to provide detailed technical guidance. Work performed by others
relates to particular ways of acquiring evidence and of achieving consistent and high quality
output. AS4 and AS5 should therefore perhaps more properly be guidelines, as they relate
to procedures rather than standards.
AS6 - 'Planning', relates to the 'Process' category of concepts and in particular to
performing a 'Risk Analysis' and determining 'Materiality'. Again, 'Risk analysis' and
'Materiality' would appear to be higher order ideas and we argue that both should be
standards drawing from ideas in the conceptual framework. In the New Zealand Auditing
Standards, materiality is relegated to being an auditing guideline, whereas Mautz and
Sharaf (1961), Flint (1988) and this study all agree that it is a fundamental concept. By
contrast it is suggested the Audit Planning, whilst acknowledged as being important, is a
procedural not a conceptual manner which should be addressed by an appropriate Auditing
Guideline. There is no standard or guideline on audit judgement. This is a fundamental
omission from the New Zealand standards in the light of this conceptual framework for
audit accountability.
AS7 - 'Accounting systems and internal control', relates to the concept of audit evidence,
but is only an element thereof. Auditors rely (to a greater or lesser extent) on internal
control to obtain their audit evidence, but in and of itself internal control is not an auditing
concept (and nor, of course, are accounting systems). It is therefore that guidance should
be given to auditors as to how to obtain audit evidence from reliance upon internal control,
but that standardization is not warranted. The standard on audit evidence should (and
does) refer to internal control as a source of evidence; the techniques for acquisition of
such evidence are the proper content of a guideline on internal control.
AS8 - 'Audit evidence', relates exactly to the concept of evidence as propounded by
Mautz and Sharaf, Flint and ourselves. AS9 - 'Documentation', would seem to relate to
a lower order idea as a subset of 'Evidence', and again should more properly be a guideline.
AS10 - 'Auditing reporting', relates directly to the 'Reporting' concept as incorporated in
 Towards a conceptual frameulork for auditing

l Table 3. New Zealand Auditing Standards and Guidelines 1992

Current standard Equates to Should be

1 Auditing
Integrity, objectivity and independence Independence
Confidentiality Practice code
Skills and competence Competence
Work performed by assistants* - Guideline
Work performed by other auditors and experts* - Guideline
Planning RiskJmateriality ***
Accounting systems and internal control - Guideline
Audit evidence Evidence
Documentation - Guideline
Audit reporting Reporting

Auditing guidelines
1. Auditing engagement letters
2. The audit report
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3. Reporting on increased costs

4. Quality control procedures Quality control
standards
Audit implications of events occurring after balance J
date
Using the work of an internal auditor* J
Analytical review J
Other information in documents containing J
audited financial statements
Fraud and error J
Auditing in an EDP environment J
Audit sampling J
Representations by management J
Going concern J
Materiality and audit risk
Audit of accounting estimates J
Special purpose audit reports J
Audit implications of prudential supervision J
Audit of related party disclosures J
Particular considerations in the audit of small J
businesses
The examination of prospective financial **
information
Inherent and control risk assessments and J
their impact on substantive procedures
First year audit engagements - opening J
balances
Observation of inventory, confirmation of accounts
receivable and enquiry regarding litigation and claims

Guidelines
GU-5 (Revised)
Guideline on Integrity, Objectivity and J
independence

J = appropriate as a guideline
* = address similar issues
** = compilation not audit guideline
*** = separate standards for risk and materiality; guideline for planning.
 30 Pratt and Van Peursem

this and earlier frameworks. Quality control procedures are included in the Auditing
Guidelines as AG4, whereas they are regarded as a fundamental concept in this and Flint's
conceptual frameworks, and should, therefore, be a standard.
It is concluded that although there is a large degree of correlation between the standards
and the proposed conceptual framework, there are some clear omissions, inappropriate
classifications as between standards and guidelines, and significant internal inconsistencies.
As an example of the latter, AG6 - 'Using the work of an internal auditor', is a guideline,
and yet it would seem to be in the same category of promulgation as the standards AS4
- 'Work performed by assistant' and AS5 - 'Work performed by other auditors and
experts'; (it has already been mentioned that these hardly seem to be fundamental
concepts). All of these promulgations related to the auditor's reliance on work performed
by others, so it is not clear why they are treated differently. These inconsistencies would
appear to result from a lack of a clear philosophy as to what constitutes a standard and
what constitutes a guideline, and as a result higher and lower order ideas would seem to fall
somewhat indiscriminately within both. The auditing standards appear to relate primarily
to procedural issues. The omissions - Risk, Materiality, Judgement, Quality conk01 -
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relate to more subjective or controversial concepts, and this may explain, but not excuse,
the lack of standardization.

Educational implications
It follows from our discussion of a conceptual framework that government has a
responsibility, to be satisfied on behalf of society, that the qualification process for auditors
incorporates an appropriate body of knowledge, training and experience to prepare them
for professional life. We believe that an important part of that education lies in conveying
to students the responsibility that the auditor has to serve society, how the profession
continues to develop and where holes or 'gaps' in standards and practice remain. We
suggest that students will benefit more from involvement in debate surrounding auditing
concepts, than from a curriculum devoted to the memorization of standards, practices and
techniques.
Our conceptual framework is offered as an appropriate basis around which such a
curriculum may be designed for introductory courses in external auditing. It is seen to be
academically sound because it draws not only from existing practice - such as a study of I
professional standards would do - but also from a philosophical view of how auditors
should behave. This framework provides the basis for what an audit could and should be,
and does not rely upon the strengths and limitations of what exists in practice! For this
reason it is seen to represent a contribution to the development of tertiary programmes
in audit education.
How can this framework be applied? It could be used by curriculum designers to assure
themselves that all of the fundamental issues involved in the discipline of audit are covered.
Using the framework also allows curriculum design and readings to be easily classified
within the various concepts. Educators may choose to emphasize some topics more than 1
others. But whatever the emphasis, by relying upon this, or some similar, conceptual I
framework, the educator will be less likely to introduce topics without explaining their
l
relationship to the whole.
Finally, we suggest that the conceptual framework provides a tangible basis for
evaluating existing professional practice and standards. We have in this paper offered one
 Towards a conceptual framework for auditing 31
example by analysing the standards of our own New Zealand profession; the analysis
could, of course, be replicated in respect of any country's auditing promulgations.
In conclusion, we suggest that by organizing a curriculum around the ideas provided
by this conceptual framework, the cohesiveness and quality of tertiary programmes in
external audit may be improved. As we continue to develop and apply these ideas to our
own curriculum, we find that both the results and feedback encourage this kind of
endeavour, and it is our hope that it can be useful to others.

Summary and conclusion

This paper has contrasted the conceptual framework for auditing of Mautz and Sharaf
(1961) with that suggested by Flint (1988) in his book, The Philosophy and Principles of
Auditing. Flint's analysis has been modified by the addition of two further concepts - 'Audit
risk' and 'Audit judgement', by the subsumption of 'Ethics' with 'Auditor credibility', and
by the elimination of 'Negligence' from Flint's concept 'Due care and negligence'. In
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addition, concept categories have been changed from 'Authority' to 'Credibility and ethics',
from 'Standards' to 'Performance' (since in Flint 'Standards' was both a category and a
concept), and an additional category of 'Communication' incorporating 'Audit reporting'
has been added.
We believe that application of these concepts can lead to more informed discussion of
the controversial issues that face the auditing profession at this time, and that they can
assist students of auditing to gain an holistic view of the discipline and to understand the
relatedness of its underlying concepts. The concepts outlined are fundamental in that the
removal of any of them would undermine the audit role. It is suggested that educators can
illustrate the relevance and relatedness of auditing standards by reference to this conceptual
framework.
We have illustrated how our conceptual framework can be used as a tool of analysis,
by comparison to the Auditing Standards and Guidelines of the New Zealand Society of
Accountants. It has been demonstrated that anomalies exist between this proposed
accountability framework and these auditing standards and guidelines, and it is recom-
mended that standards setters should give thought to the adoption of a more holistic
approach to standard setting, grounded in a broad conceptual framework.

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