Generally Accepted Auditing Standards

Generally Accepted Auditing Standards

Heather Sheetz

Accounting 491

Julie Oldham

March 28, 2008

Generally Accepted Auditing Standards

Generally Accepted Auditing Standards or GAAS is “a set of systematic guidelines used by auditors when conducting audits on companies' finances, ensuring the accuracy, consistency and verifiability of auditors' actions and reports” (Lexico Publishing Group, 2008). The following paper will explain the elements of GAAS and how GAAS is applied to audits.

GAAS has three elements that must be used during every audit. They are general standards, standards of field work, and standards of reporting. Each of the three standards has their own set of rules that must be complied with during every audit.

General standards are the qualifications the auditor must have before he/she can perform an audit. There are three general standards, adequate technical training and proficiency, independence in mental attitude, and due professional care. The main points of this standard are

1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.3. Due professional care is to be exercised in the performance of the audit and the preparation of the report” (Boynton & Johnson, 2006).

Standards of Field Work are named because it is what must be done while performing the audit at the company. There are also three main sections to this standard, adequate planning and proper supervision, understanding the entity and its environment, and sufficient competent audit evidence. The main points of this standard are summed up by Boynton and Johnson in the following statement:

1. The work is to be adequately planned and assistants, if any, are to be properly supervised. 2. A sufficient understanding of the entity and its environment, including its internal control, should be obtained to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing and extent of further audit procedures. 3. Sufficient competent audit evidence should be obtained through audit procedures performed to afford a reasonable basis for an opinion regarding the financial statements under audit.

Standards of reporting are so named because it is the standards the auditor must follow when reporting his/her findings. There are four main sections in this standard, financial statements presented in accordance with GAAP, consistency in the application of GAAP, adequacy of informative disclosures, and expression of opinion. The main points of this standard can also be summed up by Boynton and Johnson as follows:

1. The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles. 2. The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. 3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. 4. The report shall contain either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated. In all cases where an auditor’s name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking.

There are three main types of audits, financial, operational, and compliance. First “a financial statement audit involves obtaining and evaluating evidence about an entity’s