Generally Accepted Auditing Standards (GAAS)
A set of standards and principles that ensures a company's audit conforms to set quality standards and meets the audit's objectives.
Generally Accepted Auditing Standards (GAAS) Details
The Generally Accepted Auditing Standards (GAAS) and codes were developed by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA). They were first approved for adoption by the membership of the AICPA in 1972. The AICPA amends the standards from time to time, in line with developments in accounting and auditing, and issues Statements on Auditing Standards (SAS) that supersede some of the standards issued previously.
In the United States, GAAS are used to audit companies not listed on stock exchanges (non-public companies). Publicly traded companies are governed by auditing standards developed by the Public Company Accounting Oversight Board. However, in preparing the auditing standards, the board borrowed heavily from the GAAS.
Example of Generally Accepted Auditing Standards (GAAS)
Larry has been hired to audit and report his findings on the tech company ABC. Larry will review all the tech company's financial documents, looking for consistency and compliance with all laws, then present his findings to the US Securities and Exchange Commission (SEC).
Types of Generally Accepted Auditing Standards (GAAS)
There are ten GAAS which can be categorized into three main groups, they are:
- General Standards
- Standards of Fieldwork
- Standards of Reporting
General Standards typically address the overall conduct of the audit. There are three general standards;
- Audits should only be performed by a proficient person or group of persons. An auditor is required to have sufficient training and experience to ensure the quality of an audit.
- Auditors are required to have a mental attitude that will allow them to exercise independence during an audit.
- The auditor has to exercise professional care when conducting the audit and when preparing the audit report.
Standards of Fieldwork
Fieldwork standards define how audit fieldwork should be undertaken. There are three standards of fieldwork as follows;
- Proper planning of an audit is a requirement when doing an audit, and the auditor must supervise any audit assistants well.
- The auditor must have a good understanding of the company being audited and the environment in which that entity operates, including the internal controls. They should assess the risks of misreporting the financial statements due to fraud or errors and design the requisite audit procedures to address the risks.
- The auditor must obtain adequate evidence through their audit to form an opinion on the company's books of accounts.
Standards of Reporting
Reporting standards define and provide a framework for how audit reports are presented. There are four reporting standards as follows;
- In their report, the auditor must state whether the company's financial statements comply with the Generally Accepted Accounting Principles.
- The auditor must identify and report circumstances where the application of Generally Accepted Accounting Principles has not been consistently applied from one reporting period to the next.
- When the auditor is convinced that they have not received sufficient informative disclosures, they should disclose so in the audit report.
- The auditor must either give an opinion on the entity's financial statements based on the audit or state that an audit cannot be expressed, giving reasons thereof. The auditor should always indicate the audit's character and the degree of responsibility taken by the auditor.
Generally Accepted Auditing Standards (GAAS) vs. Generally Accepted Accounting Principles (GAAP)
Generally Accepted Auditing Standards (GAAS) differ from Generally Accepted Accounting Principles (GAAP). GAAS sets the standards for the conduct of audits and details the presentation of audit reports. GAAP provides the principles used in accounting. Part of the auditors' reporting duty is to report whether a company's books have been prepared following GAAP.