%0 Journal Article
%T Lessons for China and other Developing Economies from the Crisis in US Auditing
%A Michael Alles
%A Alexander Kogan
%A Miklos A. Vasarhelyi
%J International Journal of Digital Accounting Research
%D 2003
%I University of Huelva, Rutgers University
%X The continuing series of business scandals, from Enron to WorldCom have severelyundermined the credibility of auditors and audited financial statements in the US. Withdeveloping economies such as China looking to emulate western models of corporategovernance, what lessons should they draw from these apparent failures in auditing? There isa danger that those opposed to modernization of accounting and auditing will use these scandalsas an excuse to delay the adoption of new standards and methods. Indeed, the Enron/Andersenscandal was apparently one reason that Chinese authorities watered down proposals to requirefirms seeking new Class-A shares to hire a foreign auditor to supplement their local auditor.In this paper we discuss a more productive lesson that developing countries seeking to bringtheir accounting infrastructure up to Western levels can draw from the recent US experience,using China as a case study. China is the most important of all developing economies, and itsimpending entry into the WTO makes reform there particularly urgent. The path that Chinatakes is also likely to serve as a role model for much of the rest of the developing world,especially in South East Asia. We argue that developing countries have the opportunity to¡°leapfrog¡± existing auditing techniques in the West that have proven to have seriousshortcomings, and instead, go straight to the cutting edge methodologies of continuousassurance and tertiary logging. Continuous assurance is a type of auditing which, by makinguse of the ¡°electronization¡± of the firm, produces audit results simultaneously with, or a shortperiod of time after, the occurrence of relevant events. In comparison with the traditionalfinancial statements audit, continuous assurance is distinguished by being timelier, morecomprehensive, more accurate and more supportive of the management process. Thesecapabilities are especially valuable for Chinese firms who face an environment with weakerlegal, regulatory and management controls than in the West. However, the tenuous nature ofThe International Journal of Digital Accounting ResearchVol. 3, No. 5, pp. 33-60ISSN: 1577-851734the auditing infrastructure in China makes it essential that it also adopts tertiary logging as away of ¡°guarding the guards¡±. We discuss how logging the audit in a continuous assurancesetting will increase the deterrence capability of peer review, as well as serving as a source ofinstitutional memory in the case of mandated auditor rotation, the separation of auditing fromconsulting and the unique Chinese proposal for dual auditing.
%K China
%K continuous auditing
%K Sarbannes-Oxley
%K Enron
%U http://www.uhu.es/ijdar/10.4192/1577-8517-v3_2.pdf