PHILOSOPHY OF AUDITING

Mautz and Sharaf conceive of auditing as a field of knowledge built on a central core of abstract through including mathematics, logic and metaphysics. On this basis they build a hierarchical scheme consisting of:

1. Philosophical foundations
2. Postulates
3. Concepts
4. Precepts
5. Practical applications.

At the next level of their scheme, Murtz and sharaf (1961,p. 42) offer eight tentative postulates of auditing:

1. Financial statements and financial data are veririable.
2. There is no necessary conflict of interest between the auditor and the management of the enterprise under audit.
3. The financial statements and other information submitted for verification are free from collusive and other unusual irregularities.
4. The existence of a satisfactory system of internal control eliminates the probability of irregularities.
5. Consistent application of genrtally accepted principles of accounting result in fair prisentation of the financial position and the results of operations.
6. In the absince of clear evidence of the contrary, what has held true in the pas for the enterprise under examination will hold true in the future.
7. When examining financial data for the purpose of expressing an opinion thereon, the auditor acts exclusively in the capacity of an auditor.
8. The professional status of the independent auditor imposes commensurate professional obligations. 

The implications of each of these postulates, and their relevance or otherwise to contemporary auditing, are issues well worthy of study, but would take us too far from the main purposes of this discussion. From the first of these postulates, concerning the verifiability of financial information, Mautz and Sharaf derive:

• The theory of evidence
• The procedure of verification
• The application of probability theory to auditing
• Some bounds of the auditor's responsibilities.

At the next level of their scheme, Mautz and Sharaf (1961, p. 42) offer eight tentative postulates of auditing:

1. Financial statements and financial data are verifiable.
2. There is no necessary conflict of interest between the auditor and the management of the enterprise under audit.
3. The financial statements and other information submitted for verification are free from collusive and other unusual irregularities. 
4. The existence of the satisfactory system of internal control eliminates the probability of irregularities. 
5. Consistent application of generally accepted principles of accounting result in fair presentation of the financial position and the results of operations.
6. In the absence of clear evidence to the contrary, what has held true in the past for the enterprise under examination will hold true in the future.
7. When examining financial data for the purpose of expressing an opinion thereon, the auditor acts exclusively in the capacity of an auditor.
8. The professional status of the independent auditor imposes commensurate professional obligations. 

In order to do this, they bring to bear at the final level of their scheme five primary concepts of auditing (ibid.p.67):

• Evidence
• Due audit care
• Fair presentation
• Independence
• Ethical conduct

Flint (1988) gives a survey of the philosophy and principles of auditing more recent than Mautz amd Sharaf's. The postulates he proposes as a basis for the development of audit theory are:

1. The primary condition for an audit is that there is a relationship of accountability.
2. The subject matter accountability is too much remote, too complex, and/or too great significance for the discharge of the duty to be demonstrated without the process of audit.
3. Essential distinguishing characteristics of audit are the independence of its status and its freedom from investigatory and reporting constraints.
4. The subject matter of audit, for example conduct, performance or achievement or record of events or state of affairs, or a statement or facts relating to any of these, is susceptible to verification by evidence.
5. Standards of accountability, for example of conduct, performance, achievement and quality of information, can be set for those who are accountable; actual conduct, performance, achievement, quality and so on can be measured and compared with these standards by reference to known criteria; and the process of measurement and comparison requires skill and the exercise of judgement.
6. The meaning, significance and intention of financial and other statements and data which are audited are sufficiently clear that the credibility which is given thereto as a result of audit can be clearly expressed and communicated.
7. An audit produces an economic of social benefit.