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Generally Accepted Auditing Standards

Essay by   •  August 24, 2011  •  Essay  •  861 Words (4 Pages)  •  1,933 Views

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Generally Accepted Auditing Standards (GAAS) are clearly defined systematic guidelines used to audit a company's financials in order to ensure accuracy, consistency of the auditor's actions and reports. These standards were established in the late 1940's by members of the American Institute of Certified Accountants (AICPA). Initially there were 10 standards that were later incorporated into the Statements on Auditing Standards (SASs). These 10 standards have been divided into three main categories for differentiation and clarification.

The first category is the general standards. This first stipulates that audits are to be performed by an adequately trained and proficient auditor. The auditor chosen must maintain a mental attitude of independence of all matters relating to the assigned audit. The auditor must also exercise due professional care during the audit exercise as well as preparing reports on the audit.

The second category is standards of field work. The auditing process should be adequately planned and supervised, especially if the auditor is being assisted. The auditor must have a sufficient understanding of the entity and its environment; this includes internal controls for the risk of mismanagement of pertinent material and financial statements, and to define the nature, timing, and extent of future audit processes. There must be competent audit evidence obtained by the auditor through audit procedures performed in order to afford a reasonable basis for an opinion.

The third category is standards of reporting. The auditor must report whether the financial statements presented for audit are in accordance with GAAS. The auditor must identify and report any circumstances in which GAAS have not been consistently adhered to in the current accounting period. Informative disclosures of the financial statements need to be reasonably adequate, and if not so the auditor must state in a report. The final standard states that the auditor must formerly report an expression or opinion regarding financial statements. If for any reason the auditor cannot express an honest opinion, the reasons for this should also be stated in a report.

Although GAAS is the primary "law" for the audit of financial statements of a company, the statements are also audited in coordination with Generally Accepted Accounting Principles (GAAP). The material audited consists of results from the operations and cash flows for the sole purpose of conveying a professional and independent opinion to the users of these financial records. In adhering to the independence in mental attitude as outlined by GAAS, certain states have laws that only allow certified public accountants (CPAs) to conduct financial audits. In maintaining individuality and segregation of duties, many companies hire external audit firms to conduct yearly audits. This enforces GAAS as well as ensuring that internal audit procedures are also in accordance.

Operational audits

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