Generally Accepted Auditing Standards
Generally accepted auditing standards (GAAS) are a set of systematic guidelines used by auditors when conducting audits of companies' financial records. GAAS helps to ensure the accuracy, consistency, and verifiability of auditors' actions and reports. The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) created GAAS. Its members agree to adhere to the standards.
Generally Accepted Auditing Standards (GAAS)
Definition
Generally Accepted Auditing Standards (GAAS) are a set of systematic guidelines used by auditors when auditing a company's financial records. GAAS helps ensure the accuracy, consistency, and verifiability of auditors' actions and reports. The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) developed GAAS, and its members agree to adhere to these standards.
Origin
The origin of GAAS dates back to the early 20th century when financial fraud and misconduct were rampant, leading to a decline in public trust in financial reporting. To restore trust, the AICPA established the Auditing Standards Board (ASB) in 1939 and began developing GAAS. Since then, GAAS has continuously evolved and been updated to adapt to the changing business environment and auditing needs.
Categories and Characteristics
GAAS is primarily divided into three categories: General Standards, Standards of Field Work, and Standards of Reporting.
- General Standards: These standards pertain to the qualifications and independence of auditors, requiring auditors to have appropriate technical training and proficiency, and to maintain independence and professional skepticism.
- Standards of Field Work: These standards outline the procedures to be followed during the audit process, including planning and supervising the audit work, understanding the entity and its environment, and assessing risks and internal controls.
- Standards of Reporting: These standards involve the preparation of the audit report, requiring the report to be clear, complete, and provide an opinion on the fairness of the financial statements.
Specific Cases
Case One: During an annual audit of a company, auditors followed the Standards of Field Work under GAAS to thoroughly understand the company's internal control system and assess the risks of the financial statements. Through these steps, auditors identified potential misstatements in the financial statements and provided recommendations for improvement, helping the company enhance the accuracy of its financial reporting.
Case Two: In another company, auditors followed the Standards of Reporting under GAAS to prepare a detailed audit report that highlighted inconsistencies in the financial statements. This report helped the company's management identify and correct errors in the financial reporting, increasing investor confidence in the company.
Common Questions
Question One: How does GAAS differ from International Standards on Auditing (ISA)?
Answer: GAAS is primarily used in the United States, while International Standards on Auditing (ISA) are used globally. They are similar in basic principles but may differ in specific requirements and applications.
Question Two: What are the most common challenges auditors face when adhering to GAAS?
Answer: Common challenges include maintaining independence, obtaining sufficient audit evidence, and dealing with complex financial and business environments.
