Generally Accepted Auditing Standards - Essay Example

There are three categories of GAS with 10 standards known to date (Boonton & Johnson, p. 0, 2006). Elements of the Generally Accepted Auditing Standards (GAS) The first category in GAS is General Standards. Under this category, an auditor must: 1. Have acceptable training in the technical field. The competency of the auditor has three factors: (1) university education, (2) practical training and experience, and (3) continuing education throughout the auditor’s career. 2.

An independence in mental attitude is crucial to the audit and will reduce the lack of Judgment. 3. Professionalism is to be exercised in the performance throughout the planning, testing and reporting. Any of all issues would be let known in the final report. In the second category, Standards of Field Work, the auditor is required to: 1 . Plan his or her work adequately and supervise any assistance that may help with the audit 2. Gain a sufficient understanding of the organization and the background of the company.

Gain the knowledge of the company’s internal control, evaluate any risk regarding the financial statement misstatement whether due to fraud or error, and make a note for future auditors if there could be recurring problems and provide an analysis of the situation so future audits can recheck the issues. . Acquire sufficient audit evidence through audit procedures performed to provide a foundation for an opinion regarding the financial statements under audit. The final category is Standards of Reporting.

In this category an auditor must: 1 . State in his report if the financial statements audited were presented in accordance with Generally Accepted Accounting Principles (GAP). 2. Report any circumstances in which GAP has not been steadily used and which period the irregularities happened. 3. Determine if the disclosures of the financial statements have been consistently observed. If not, the auditor needs to determine and input the time length of the inadequate disclosures in the final report. 4.

The report shall state the Judgment of the auditor in regard to the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. If an auditor cannot provide an overall opinion, he or she would need to provide reasoning for the lack of opinion in the final report (Boonton & Johnson, p. 51, 2006). How standards apply to financial, operational and compliance audits A financial audit is to ensure that the entity is in conformity with Generally Accepted Accounting Principles, company policies, and any other standards needed to ensure the company is within compliance.

This type of audit will include assessments on the organization’s results of operations, cash flows and the presentation of it’s financial position (Boonton & Johnson, p. 8, 2006). An operational audit, also known as a management audit or performance audit, is used to assess a company’s efficiency and effectiveness in regards to the entity’s operating activities. The report on this audit will typically recommend ways for improvements (Boonton & Johnson, p. 9, 2006). A compliance audit is to establish if the organizations financial or operating activities are within the agreement of the entity’s rules and regulations.

The Serbians-Solely Act of 2002 requires organizations to have a dual-purpose audit that assesses both financial statements as well as management’s assertion to the adequacy of internal controls (Boonton & Johnson p. 8, 2006). The effect that the Serbians-Solely Act of 2002 and the Public Company Accounting Oversight Board will have on audits of publicly traded companies. Public Company Accounting Oversight Board (PEPCO) was established by the Serbians-Solely Act of 2002 and was given the responsibility for setting auditing, independence, ethics as well as quality control standards for audits of public companies (Boonton & Johnson, p. 0, 2006). This nonprofit corporation, which began in 2003, consists of five members in which Serbians-Solely Act of 2002 also extended the auditor’s work beyond the financial statement audit and now includes auditors to audit management’s assertion on the internal controls over financial reporting. This was an effort by Congress to help safeguard the welfare of investors. Today, the PEPCO reserves the right to set new auditing standards for public companies, but as of current the auditors still follow existing Statements on Auditing Standards (AS).