GAAP Standards Essay example

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ACC 491
September 9, 2013
Getachew Wakgira

Generally Accepted Auditing Standards Paper
The general function of an audit is defined as: an official inspection of an individual or organization's accounts, typically by an independent body; a systematic review or assessment of something. When applied to the business world an auditor can provide a number of services. An auditor can examine objectively an organizations financial statements and express an opinion of the fair representation of those statements. An auditor can also examine a companies procedures and processes to ensure that the company is in compliance with laws and regulations, compliance with contracts and internal controls. They then issue a report attesting to either the compliance or lack thereof of that company. An auditor can also provide assurance services where they examine the integrity and security of a company’s information system. (Boynton & Johnson, 2006)
All audits are to be conducted according to Generally Accepted Auditing Standards (GAAS). There are three categories that cover the foundation of auditing: general standards, standards of fieldwork, and standards of reporting.
The general standards section covers training, independence, and professionalism. Training - Does the auditor have an education in accounting; the practical experience in auditing, and knowledge of the industry being audited? Independence - Is the auditor independent of the client being audited in fact and appearance? Professionalism - Does the auditor observe the standards of fieldwork and reporting (AICPA, 2012)?
The standards of fieldwork section covers the areas concerning planning and supervising, internal controls, and evidence. Planning and Supervising - Has an audit program been developed? Has a qualified auditor reviewed all the work of the staff auditors? Internal Control – Have internal controls been evaluated to determine if they will prevent or detect material misstatements of the financial statements? Evidence – Has sufficient evidence been reviewed in order to provide a reasonable basis for an opinion?
The standards of reporting section deals with accounting, consistency, disclosure, and expressing an opinion. Accounting – Does the report state whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP)? Consistency – If applicable, does the report identify any circumstance in which GAAP was not consistently observed? Disclosure – If applicable, does the report provide informative disclosures? Express an Opinion – Does the report state an opinion regarding the financial statements (AICPA, 2012)?
At the conclusion of an audit the client should be able to answer yes to all of the questions posed above. If all the above criteria have been met the client can rest reasonably assured that the audit has met the GAAS standards. As an auditor they should also ensure that they are in compliance by reviewing these standards throughout the audit process.
In 2002 following the fraud and collapse of both WorldCom and Enron, and the subsequent indictment and dismantling of the CPA firm Arthur Anderson, restoring investor confidence and attempting to prevent future fraudulent accounting behaviors became the government’s primary focus.. The SOX Act was created by Senator Paul Sarbanes and Representative Michael Oxley and set new or enhanced accounting standards to help ensure the accuracy of financial reporting. Congress passed it in July 2002. The first major change enacted by the SOX Act established the Public Company Accounting Oversight Board (PCAOB) that with in conjunction with the SEC sets auditing
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