Examining auditing in the context of environmental awareness



With the changes in the external environment, auditing changes synchronously in the audit objectives, auditing techniques and audit firms. This report will give certain analysis and discussion to the future development trend in auditing as well as the changes in the auditing environment. Firstly, the development history of auditing will be reviewed to demonstrate how auditing response to the changes of external environment. Secondly, current auditing environment will be in description and the analysis will be given to the interaction between external auditing and its external environment. Lastly, the prediction will be given to demonstrate in what way auditing might response to the future changes of auditing environment and what auditing might be like in the near to medium term future.


At the beginning, auditing was carried out to find out the fraud and only the Balance Sheet is audited. The result was delivered to the shareholders or the owners of company. The technique was quite simple that the auditor checked the transaction record and account thoroughly to find out whether there is some inaccuracy and cheating. With the development of society and economy, the auditing environment has gone through changes which lead to the evolution in auditing. Many changes have emerged from audit objectives to the auditing method, as well as the element in the audit report. Accordingly, this report will provide analysis to the changes in the auditing environment. And also prediction on the future changes will be given next. Based on the analysis and discussion, the picture will be drawn on how auditing might be like as the result of the interaction between auditing and its external environment. During the analysis and discussion, certain related examples and auditing theory will be used to support the views in the report.

Research method

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Through the books and papers in the auditing field, several events are chosen as samples to demonstrate how the changes in the auditing environment give rise to the changes in auditing. Based on these events, developments in the society and economy are taken into consideration to viewed as the independent variable which causes the changes in auditing. Then the focus shifts to the interaction between auditing and its external environment. According to the interaction mechanism, some predictions are made on auditing in the future as well as the external environment.

Discussion and Analysis

The development of auditing in the process of response to the external environment

To understand the development of auditing in the process of response to the external environment, several events are selected as samples with the criteria as follows:

It must catch wide attention not only in the audit field, but also in the economic sector;

It must give rise to some acts, which regulate the auditing , or at least it accelerate the pace;

It lead to the improvement of auditing mechanism as well as the audit principle;

According to the criteria, there are several events taken into consideration to demonstrate how auditing response to the events which reflect the great changes in the economic environment (Mautz and Sharaf, 1961).

In the development process of auditing, various kinds of acts have played important roles. The acts which are relative to auditing were developed by the needs of society and in turn it reinforces the order in the market environment. For example: Companies Act (2006) state that: More information, such as environmental matters, the company’s employee, is required to expose in the report, though it is unnecessary to audit such information.

How auditing response to the changes in external environment

From the Table 1, it is clearly demonstrated that the event reflect the need of changes in auditing to protect the interest of stakeholder better. The event illustrated some defects of current auditing method and called for an improvement (Blatchford. 1989).

The changing progress can also be observed (Anderson, 1977):

one scandal event shows the Defects of the auditing principles and methods

the society criticize the scandal as well as the auditing field which caused the auditing field to reflect and improve

the authority publishes some acts to regulate the activity in the market in order to protect the interest of stakeholders

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auditing field follows the rules set by authority and put it into practice which in turn promote the development of auditing.

In the process, society needs and completion which can be called “market force”, have played the key role.

Ernst & Young can be used as an example to illustrate how the auditing changed ( Flint, 1988):

1849 Harding & Pullein founded in England. Joined by Frederick Whinney

1859 Whinney made a partner

1903 Alwin and Theodore Ernst form Ernst & Ernst in Cleveland, USA

1989 Arthur Young merges with Ernst & Whinney to create Ernst & Young

2000 Ernst & Young unveils a new, integrated global organization

On-going changes from 1990s to present

At present, there are some factors in external environment, which lead to some significant changes in auditing. These factors are as follows:

fast development in globalization

rapid promotion in Information and widely-used internet

on-going development in the size and influence of companies, especially listed companies.

Audit firms also face different Industry environment which is in great changes at the same time:

More Fierce competition than ever before which is the most significant character in the Industry environment

Some scandals happened when auditing did not response effectively to find the fraud and cheating, some famous audit firms even corporate with the scandal companies which does great damage to the fame of audit firms

Growing numbers of the Lawsuit in which audit firms are required to stand more responsibility for the fraud and cheating

Income structure has changed grandly. Nowadays, auditing is not the Main Business of the account firms which depend more and more on the Consulting business. In 1999, the consulting income had surpassed the auditing income to make up about nearly half of total income in PWC.


What the future auditing may be like

Today, the purpose of the audit is no longer confined to the authenticity of the financial statements of enterprises. With the advance of science and technology, the continuous development of economy and society, the increasing scale of business enterprise, its business process, transaction, information processing has become increasingly complex, enterprises are facing the growing risk of all aspects, such as increasingly strict rules and regulations, more and more stakeholders and so on. There are some predictions on what the auditing may be like in the future as follows: In the future auditing might be viewed as the add-value activity which can also handle the risks. Risk-oriented audit approach, which makes our auditors focus more on risk and complexity, has been widely used to check the risks through auditing process (Roussey.1996); In the future auditing objective might be check the fraud and cheating which returns to its original goal (Power. 2003); In the future information technology and the use of internet will change the auditing forever, not only in the auditing method but also in the auditing theory and thoughts; Because of the fierce competition, there may be some merger and acquisition between the exiting four global audit firms just like what has happened before.