generally accepted auditing standards
Generally Accepted Auditing Standards
It is absolutely essential for an independent auditor to comply with the '10 Generally Accepted Auditing Standards (GAAS)'. This Buzzle article enlists these standards, to help you understand what it takes to achieve quality results in the process of auditing.
Almost all professions have a standard code of conduct which consists of certain guidelines that need to be followed. The Generally Accepted Auditing Standards (GAAS) are a pre-defined set of criteria to which all the certified public accountants must abide by. These determine the quality and the efficiency of the audits done, be it of a private firm or a government entity. They are also followed when it comes to passing a judgment on the work done by an auditor.
Establishment of GAAS
In the United States, there are 10 standards which were established by the American Institute of Certified Public Accountants (AICPA) in 1947. Although, with time, there have been minor amendments in these standards, but the basic rules still apply.
The 10 GAAS to Follow
The list below is based on the general working standards related to the field work, interpretations, and reporting.
General Standards
- In order to perform an audit, the auditor must possess adequate amount of proficiency through technical training.
- It is also necessary for the auditor to consistently keep an independent approach in terms of his/her mental attitude, when it comes to matters related to performing the audit.
- It is important for the auditor to exercise professionalism during the task.
- Efficient planning of the work and proper supervision of the assistants must be done by the auditor.
- It is also important for the auditor to understand the entity and its environment thoroughly, in order to assess the possibility of fraud or error, when it comes to material misstatement. This also helps the auditor to further design the audit procedure, keeping in mind the nature and the time that would be needed.
- Obtaining audit evidences while performing the procedure also helps the auditor to base his/her opinion about the financial statements that have been, or are being audited.
- Once the field work has been done, it is mandatory for the auditor to state in his/her report whether or not the financial statements presented, follow the Generally Accepted Accounting Principles (GAAP).
- If it is found that the generally accepted accounting principles have not been followed consistently during the current period in relation with the preceding period, then the auditor must mention those circumstances in his/her report.
- The auditor must present adequate informative disclosures in his/her report. If they are not sufficient, then that should be stated in the report.
- Also, the auditor must mention his overall opinion regarding the financial statements of the entity. In failing to do so, he/she must mention a valid reason. It is also important for the auditor to comment upon the nature of the organization's auditor in terms of work efficiency and responsibleness.
- Independence: Very similar to the GAAS, this criterion states that the auditor must obtain organizational independence from its management, as this would help him/her evaluate the activities of all organization's personnel in an uninterrupted and unrestricted manner, also including the management.
- Supervision: The auditor must carry out a well planned and effective supervision of the assistants, as well as the entire auditing process. This helps to complete the entire process in a more systematic and efficient manner.
- Continuing Professional Education (CPE): CPE is the medium through which the members of a professional group help the professionals of an organization improve and brush up their skills and qualities. The AICPA offers many courses for the certified public accountants to help them enhance their auditing skills.
- Due Care: When it comes to any professional task that requires the person―in this case, the auditor―to follow certain standards in order to investigate the loopholes, it is always important to work with due care and diligence.
- Quality Control: The auditor must also be sure to keep a constant check on the quality control in terms of the way the auditing is taking place and the audit report is being prepared. He/she must also check if the financial statements are written as per the GAAP rules or not.