What Are Generally Accepted Auditing Standards (GAAS)?
Let me explain what GAAS really means for you as someone interested in financial audits. Generally accepted auditing standards (GAAS) are the set of systematic guidelines that auditors like me follow when we conduct audits on companies' financial records. These standards ensure the accuracy, consistency, and verifiability of what auditors do and report. The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) created GAAS, and its members commit to following them.
Understanding Generally Accepted Auditing Standards (GAAS)
You should understand that GAAS serve as the benchmarks for audit quality. As an auditor, I use them to review and report on companies' financial records. We're responsible for checking if public companies' financial statements follow generally accepted accounting principles (GAAP), which are the rules for recording and reporting financial results. This process ensures consistency and compliance. Remember, the SEC requires external, independent auditors to examine public companies' financials.
Requirements for GAAS
Here's what you need to know about the requirements. GAAS breaks down into three sections: general standards, standards of fieldwork, and standards of reporting. Under general standards, auditors must have adequate training and proficiency, maintain independence in attitude, and exercise due professional care. For fieldwork, we plan the work properly, understand the entity's environment and internal controls to assess risks, and gather sufficient audit evidence. In reporting, we state if statements follow GAAP, note inconsistencies, highlight inadequate disclosures, and express an opinion or explain why we can't.
GAAS vs. GAAP
Don't confuse GAAS with GAAP—I'll clarify the difference directly. GAAS are the auditing standards I follow to review records and produce reliable reports, while GAAP are the accounting standards companies use for recording financial activities. Auditors apply GAAS to check GAAP compliance. GAAS come from the AICPA, and GAAP from the Financial Accounting Standards Board (FASB). GAAP ensures consistency, transparency, and fraud protection in financials, making it easier for you to compare companies.
Frequently Asked Questions
- What Are the 3 Types of GAAS? The three sections are General Standards, Standards of Field Work, and Standards of Reporting.
- What Is GAAP in Auditing? GAAP are the accounting principles companies follow for recording and reporting, which auditors then examine using GAAS.
- Does an Auditor Have to Follow GAAS? If you're a member of the AICPA, yes, you must follow GAAS.
- What Happens if an Auditor Doesn't Follow GAAS? You could face liability for negligence and any resulting company losses.
The Bottom Line
To wrap this up, GAAS are the guidelines auditors follow to examine and report on financial records, emphasizing proper actions for reliability. They're separate from GAAP, which cover accounting rules, but I use GAAS to verify GAAP adherence in audits.
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