Acc 491 - Generally Accepted Auditing Standards

Generally Accepted Auditing Standards Paper

University of Phoenix

Contemporary Auditing 1

ACC 491

January 6, 2010

Generally Accepted Auditing Standards Paper

Dictionary.com defines auditing as "an examination of an organization's financial documents in order to determine whether the records and reports are valid and the information is fairly presented" (Dictionary.com, 2009). The process of auditing consists of gathering, evaluating/verifying, and reporting financial information.

This paper will explain the nature and functions of auditing, describe the main parts of the Generally Accepted Auditing Standards (GAAS) and give details how the GAAS standards apply to financial, operational, and compliance audits. This paper will also explain Sarbanes-Oxley Act of 2002 and the Public Company Accounting Oversight Board (PCAOB), and the effect that these entities have on audits of publicly traded companies. Lastly, this paper will address additional requirements that auditors are now responsible for due to the Sarbanes-Oxley Act and the actions of the PCAOB.

Generally Accepted Auditing Standards, otherwise known by the acronym GAAS, is the set of guidelines for conducting and reporting of financial statements, as set forth by the AICPA. GAAS contains 10 different standards, classified within three sections.

How do these 10 standards apply to auditing? The first section of the GAAS, the General Standards, contains three standards. The auditor is required to be an independent party to which the audit is taking place. The auditor must be proficient in accounting and auditing, and the auditor must use due care.

The second section, standards of fieldwork, also contains three standards that affect the audit work to be performed. Understanding the company internal controls is one requirement. The auditor must plan and supervise all audits being conducted and document all evidence that supports the financial statements.

Last, the reporting standards section contains the final four standards including; disclosures, obligation, consistency, and GAAP adherence. First and foremost, financial statements must be in compliance with GAAP. The auditor is to verify accuracy of financial statement reporting and disclose any information pertaining to any changes in accounting in the consistency of accounting principles (Bent, 2002).

Following the Arthur Anderson scandal and collapse of both WorldCom and Enron, restoring investor confidence and attempting to prevent future fraudulent accounting behaviors became the government focal points. Senators Paul Sarbanes and Representative Michael Oxley created the Sarbanes-Oxley Act,