Generally Accepted Auditing Standards Paper

Generally Accepted Auditing Standards Paper

Auditing is indispensable for today's economic activities. According to Boynton and Johnson (2006), auditing is defined as "a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users." (p. 6). In 2003, Public Company Accounting Oversight Board (PCAOB) has developed 10 generally accepted standards to regulate the audit behavior, which are known as Generally Accepted Auditing Standards (GAAS).

The 10 GAAS can be summarized into three categories:

General Standards

(1) Auditors performing the audit are required high professional education and enough training in expertise area.

(2) Auditors must maintain an independent position and exclude outside influences to objectively perform the audit and report the auditing results.

(3) Auditors are required to be rigorous and prudent no matter they are in the process of carrying out audit, or presenting conclusion report.

Standards of Field Work

(1) Sufficient planning and appropriate supervision could make audit more efficient.

(2) Auditors are required to understand the factors that could be impact on the risk of substantial misstatement in the entity.

(3) Auditor's opinion should be supported by adequate proficient audit evidence

Standards of Reporting

(1) Auditors are required to ascertain whether the financial statements meet the principles of GAAP.

(2) Auditor's report must maintain consistency in applying GAAP.

(3) Auditors are required to reveal the informative disclosure to the financial statements in their reports.

(4) Auditors are required to address their opinion regarding the financial statements.

Financial audit is an audit of financial statements. In most states, only certified public accountants (CPAs) can conduct audit on the financial statements by law. To implement independence in mental attitude, a company usually hires an external firm to give an outside opinion of its financial statements.

Operational audit is testing the efficiency and effectiveness of a company's operating activities. (Kinyo, 2012, para.8) This type audit relies on standards of field work to evaluate the company's internal system and procedures, and employ the standard of reporting to express the auditor's opinion on those reports.

According to Rouse (2010), "a compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines."(para.1) therefore, the GAAS element of standard of reporting will be implemented to determine if the company in accordance with the GAAS criteria in its economic activities.

In response to a series of sensational financial scandals, known as Enron/Andersen