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Generally Accepted Auditing Standards Essay

1107 words - 5 pages

Generally Accepted Auditing Standards

Generally Accepted Auditing Standards
“Auditing plays a vital role in business, government, and our economy” [ (Boynton, W. C., & Johnson, R. N., 2006, p. 5) ]. Investors and creditors rely on the assurances provided by both internal and external audits that use the Generally Accepted Auditing Standards (GAAS), the Sarbanes-Oxley Act of 2002 (SOX), and the Public Company Accounting Oversight Board (PCAOB). These standards and regulations define both the audit and the auditor whether performing financial, operational, or compliance audits.
Audit Types
The three main types of audits are financial statement, compliance, and operational. ...view middle of the document...

“Most states require candidates for the CPA Exam to earn the equivalent of 150 semester units of college credit” while “continuing professional education requirements mandated by many state boards of accountancy, the AICPA, and state societies” [ (Boynton, W. C., & Johnson, R. N., 2006, p. 50) ].
Independence in Mental Attitude means “competency alone is not sufficient” (Boynton, W. C., & Johnson, R. N., 2006, p. 51). The auditor must maintain freedom from management in order to perform both an independent audit and the associated reports. In addition, the auditor must meet the independence requirements set forth by the AICPA’s Code of Professional Conduct.
Due Professional Care requires that an auditor be diligent and careful when performing an audit and when issuing the associated reports. This includes a critical review of work performed and judgments exercised by less experienced personnel participating in the audit. The auditor must act on good faith and not be negligent both while performing the audit and when reporting the findings.
Standards of Field Work
Adequate Planning and Proper Supervision is self-explanatory. Adequate planning involves developing audit strategies and designing audit programs for the audit process. Proper supervision in essential because less experienced participants may execute major parts of the audit process. Both their work and judgments need to be checked for consistency with GAAP.
Understanding the Entity and Its Environment, Including Internal Control is important because of the series of factors that influence the risk of material misstatement. An auditor needs to understand the objectives, strategies, and business risks associated with material misstatement in financial statements. According to the text, the auditor must understand:
* “The entity’s industry, regulatory, and other external factors
* The nature of the entity, including its application of accounting policies
* The entity’s objectives and strategies and related business risks, as well as its risk assessment process
* The entity’s measurement and review of financial performance
* The entity’s system of internal control” [ (Boynton, W. C., & Johnson, R. N., 2006, p. 52) ].
Knowledge of the entity’s internal control system is very important. The auditor must assess if the entity has effective or ineffective internal controls in order to properly assess the risk of material misstatement.
Sufficient Competent Audit Evidence requires the auditor to have a “reasonable basis for expressing an opinion on the entity’s financial statements” (Boynton, W. C., & Johnson, R. N., 2006, p. 52). The auditor must have both sufficient and competent...

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