Generally Accepted Auditing Standards
Generally Accepted Auditing Standards
Organizations that register with the Securities and Exchange Commission (SEC) are required to substantiate their financial reports. Typically, these companies choose external auditors to review and validate their financial statements in accordance to the rules of SEC and the Sarbanes-Oxley Act of 2002. The auditing firms are required to register with the Public Company Accounting Oversight Board (PCAOB), which oversees the audit performance of accounting organizations. The fundamental base of an audit is to offer assurance that the assertions and management conduct are synonymous with financial reporting standards.
A provision of Sarbanes-Oxley was to give the PCAOB authorization to establish auditing standards for the registered public accounting companies (PCAOB-Auditing Standard No. 1, 2003). The Board temporarily implemented the generally accepted auditing standards (GAAS), which were created by the American Institute of Certified Public Accountants (AICPA). The essence of these 10 standards provides auditors an understanding of how their audits will be measured and on what basis the audits are judged. According to “Generally Accepted Auditing Standards” (2001), “Auditing standards provide a measure of audit quality and the objectives to be achieved in an audit… Auditing procedures are acts that the auditor performs during the course of an audit to comply with auditing standards” (AU Section 150).
The features of the 10 standards are related to the expectations and performance of auditors and are grouped as follows: general standards, standards of field work, and standards of reporting (“AU Section 150”, 2001). The general standards highlight the required skill set of the auditor, the ability to stay independent and unbiased, and exercise professional care during the audit and reporting process. Under the standards of field work, the requirements are related to the intricacies of the audited business. The auditor is required to provide an acceptable work plan, understand the entity and their internal control procedures, to assess the risks of misstatements of the financial statements, and gather sufficient evidence to support their opinion. The final four standards are grouped under standards of reporting. The auditor’s report captures whether the financial statements are in agreement with GAAP, list inconsistent instances that are reported from period to period, note if disclosures are inadequate, and finally express or not express their opinion with an explanation. Deloitte and Touche performed the audit for Manpower, Inc. In their report for years 2010 and 2011, it was noted that their performance was in accordance with GAAS as stated by PCAOB. In the auditor’s opinion, the “consolidated financial statements were present fairly, in all materials respect…in conformity with the accounting principles generally accepted