Gaas

An auditor’s report provides essential information to third party users. Their evaluation of a business’ financial statements and internal controls help third party users make quality decisions. The Generally Accepted Auditing Standards was created to ensure the quality of performance and the overall objectives to be achieved in a financial statement audit. GAAS provides a guideline to auditors and a basis to evaluate an auditor’s work.

The elements of the Generally Accepted Auditing Standards (GAAS) are divided into three different categories: General Standards, Standards of Field Work, and Standards of Reporting. The general standards relate to the adequate technical training and proficiency, independence in mental attitude, and due professional care. Adequate technical training and proficiency includes formal university education. Independence in mental attitude requires the auditor to be free of management’s influence in any process of the audit. Due professional care requires an auditor to be diligent in performing an audit and efficient in its reporting. Standards of field work consist of having the appropriate planning and supervision, understanding the entity and its environment, and acquiring competent audit evidence. Standards of reporting require auditors to meet financial statements presented in accordance with GAAP, Statements of Auditing Standards (SAS), and Public Companies Accounting Oversight Boards (PCAOB) Auditing Standards. “Management is responsible for the oversight of those charged with governance, to ensure that the entity's operations are conducted in accordance with the provisions of laws and regulations, including compliance with the provisions of laws and regulations that determine the reported amounts and disclosures in an entity's financial statements” (AU-C Section 250 Consideration of Laws and Regulations in an Audit of Financial Statements. n.d.). Management not only has to oversee the others but also by example and follow any processes set in place.

Effect of Sarbanes-Oxley of 2002 and Public Company Accounting Oversight Board

The Sarbanes-Oxley Act was enacted in 2002 as a response to fraudulent activity and financial reporting from large companies, including Enron and WorldCom. The need to reduce the risk of fraudulent financial reporting from publicly traded companies was essential to all the parties affected by this information. Through the enactment of the SOX Act, government hoped to ensure the trust on annual reports by third parties, such as investors and creditors. Through a team effort between audit committees, auditing profession, and corporate management, the SOX Act has held businesses accountable. Section 103 of the SOX Act created the Public Company Accounting Oversight Board (PCAOB) to establish items such