Running head: GENERALLY ACCEPTED AUDITING STANDARDS

Generally Accepted Auditing Standards Catherine Groenhoff, ACC/490 April 16, 2012 Judy Thomas

Running head: GENERALLY ACCEPTED AUDITING STANDARDS Generally Accepted Auditing Standards To ensure that public companies are audited in a similar way, a set of auditing

standards has been widely adopted. There are 10 standards, and they are intended to be a broad guide for what how audit should be approached. These standards are known as the Generally Accepted Auditing Standards or GAAS and were originally created in the late 1940s. Rather than a detailed step-by-step procedure of how to do audits, these standards establish how audits should be done at a high-level the conceptual aspects of what should be included. The first three standards are general standards and include adequate technical training and proficiency wherein the competency of the auditor is determined by his or her formal education, practical training, experience, and continuing education in the field. The second standard is independence in mental attitude, meaning the auditor should be free of the influence of the companys management when performing the audit. The auditor should not approach the audit with any bias toward the outcome. The third standard is due professional care. This standard requires that the auditor be diligent in his efforts and not neglect any pertinent information he or she must also critically review the work done by any less experienced auditors on the team. Just as a physician is expected to use good judgment and care, so too must an auditor. The second three standards are the standards of fieldwork. The first of these standards require that the work is to be adequately planned and assistants are to be adequately supervised. This helps ensure that the audit is not just thrown together hastily without regard for the process and outcome. The second standard is that the auditor should have a sufficient understanding of the internal workings of the organization and its

Running head: GENERALLY ACCEPTED AUDITING STANDARDS financial statements. Such things the auditor would need to know in relation to this are the companys industry, any regulatory factors, risk factors, and the companys measurement and review of their financial performance. The third standard is for the auditor to compile sufficient competent audit evidence. There must be both enough evidence and quality evidence to support the auditors opinions. The third and final set of consists of four standards relating to the standards of reporting. The report prepared by the auditor should state whether the financial

statements are presented in accordance with the generally accepted accounting principles. The report should also identify and instances in which those principles have not been observed and informative disclosures in the financial statements are to be regarded as reasonably adequate unless stated otherwise in the report. Finally, the report must contain either the auditors opinion regarding the companys financial statement, as a whole, or a statement by the auditor than an opinion cannot be expressed. In which case, the auditor would need to provide reasons he/she cannot express an opinion. One important thing that came out of the Sarbanes-Oxley act is the creation of the PCAOB, or the Public Companies Accounting Oversight Board. Section 103 of the act states that the PCAOB must establish a set of auditing standards to be followed by public companies, prior to which, public companies followed a lower set of standards. Having an oversight board that establishes higher standards for auditing should ensure that publicly traded companies more accurately report their financial position and other information about the company to investors. This may have negative effects on stock prices for some companies who are now forced to report more accurate numbers instead

Running head: GENERALLY ACCEPTED AUDITING STANDARDS

of what they had been reporting. Hopefully, the effect of this part of the Sarbanes-Oxley act will be a positive one. Additional requirements are also placed on the auditors in this act. Now, the auditors of public companies are legally responsible to detect and report fraud within the company. They must also report and illegal acts they find. In addition, they are responsible for evaluating the internal controls the company has in place as well as determining if the company is an ongoing concern. The GAAS, or generally accepted auditing standards, are necessary to ensure consistent auditing and reporting of the auditors findings across different companies. It allows investors to be reasonably confident that the audit has been performed by someone who knows what they are doing, has sufficient education and experience to conduct the audit, and knows what theyre looking for, especially in terms of illegal activity or fraud. And with the introduction of the PCAOB, we can now be more certain that the auditors findings are accurate.