What is GAAS? GAAS also refers to as the generally accepted accounting standards and defined as a set of guidelines used by auditors when conducting an audit on a business’s finances. Additionally it ensures the accuracy, consistency and verifiability of auditors' actions and reports, (GAAS, 2014). The auditing of an organization will provide that company with accountability which is very important in a stakeholder or stockholders perspective. As an investor you would not want to buy stock or loan capital to a company whose financial statements were a mess or their financial health was poor. The auditing process is an important part of the financial system. It gives a good outlook on what the company’s overall financial health is and investors can make their decision based on this. When conducting an audit the auditor must take into consideration of the generally accepted accounting standards and abide by regulations such as the Sarbanes-Oxley Act of 2002. This paper will discuss the elements associated with GAAS as well as discuss how these standards apply to financial, operational, and compliance audits. Additional there will be a discussion on the effect that the Sarbanes-Oxley Act of 2002, and the Public Company Accounting Oversight Board (PCAOB)and what affect they have on audits of publicly traded companies, as well as other requirements that are placed on auditors from this Act, and the actions of the PCAOB.
Elements of GAAS
The Generally Accepted Accounting Standards has three main elements and these include; General standards; Standards of fieldwork; Standards of reporting. Each is defined below, (GAAS Elements, 2014).
The auditor must have proper training to perform an audit.
The auditor must maintain independence in all matters relating to the audit. The auditor must exercise due professional care in the performance of the audit and the preparation of the report. Standards of Field Work
The auditor must adequately plan the work and must properly supervise any assistants. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures. The auditor must obtain appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. Standards of Reporting
The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles. The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report. The auditor must either express an opinion regarding the financial statements, or state that an opinion cannot be expressed, in the auditor's report. Financial Statement audits are performed by CPAs or external auditors to obtain evidence and evaluate the organizations financial position as well as the income statement and cash flows. An Operational Audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an organization operating activities. A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines. Auditors review security polices, user access controls and risk management procedures over the course of a compliance audit. Sarbanes-Oxley Act of 2002 & Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (also known as the PCAOB) is a private-sector, nonprofit corporation...
References: GAAS Elements, (2014) Retrieved from;
GAAS, (2014), Retrieved from;
PCAOB, (2014) Retrieved from;
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