Introduction

Issues in international auditing arise from two sources, namely the audit of multinational companies (MNCs) and the audit of non-domestic companies. The importance of international auditing is established below by considering each source in turn. The distinction between the two sources arises from the difference between foreign direct investment and foreign portfolio investment. In the case of foreign direct investment a company sets up branches or subsidiaries in other countries, and the company is usually described as a multinational where these foreign operations form a material part of the group’s total activities. In the case of foreign portfolio investment a company or an individual buys shares in foreign companies, usually through the medium of foreign stock exchanges, although in some cases the foreign company may be listed on the domestic stock exchange. The distinction between direct and portfolio investment depends on the degree of control which can be exercised by the investor.