Importance of Generally Accepted Auditing Standards (GAAS)

Topics: Auditing, Audit, Auditor's report Pages: 14 (4922 words) Published: September 23, 2013


Accounting
Importance of Generally Accepted Auditing Standards (GAAS)
Miriam Manjarres
November 18, 2012

Abstract
The Generally Accepted Auditing Standards are standards that were developed through the American Institute of Certified Public Accountants as a foundation in conducting an audit in its reasonable accuracy. There is a need for auditors to follow the standards provided to be able to render a report of the financial statements audited stating that it is free from any misstatement. GAAS are divided into three categories such as the general standards, the standards of fieldwork and standards of reporting. Auditors can render reports of the financial statements audited in four ways. The report render can either be qualified opinion, unqualified opinion, adverse opinion and disclaimer of opinion. Auditors who considered the report to be free from any material defect can render a report of unqualified opinion and a disclaimer is issued if the auditor will not be able to render a report on the basis of want of sufficient information. Independence and impartiality are character traits that auditors must nurture and the materiality of an audit finding has an inverse relationship with audit risk.

Introduction
A business entity has the need to prepare financial statements that will truly reflect its economic performance within a business cycle. The financial statement will serve as proof on how the entity fared, on whether or not it was able to gain a profit or suffered a loss while conducting its daily business operation. The prepared financial statements will show the financial position, the comprehensive income, the cash flows and the changes in equity of the company. Failure to reflect an accurate report will have dire consequences not only to the business organization but also to the other stakeholders. Thus, business entities have to accurately report its economic standing and it is the role of the auditors to render an audit that will accurately show the financial standing of the company with the aid of Generally Accepted Auditing Standards. The government had imposed rules and regulations as well as guidelines on how these financial statements are made. This is to prevent companies from misstating their financial reports especially if it has the intention to mislead the public and its stakeholders on its true economic standing. To further safeguard the stakeholders who are relying on the business entity’s reported financial statements, the government is requiring that these financial reports be audited by external auditors who will check the reasonableness of its accuracy. These auditors must remain independent and objective in conducting the audit to prevent the stakeholders from thinking otherwise. There are also rules and guidelines that auditors follow in conducting the audit. The Generally Accepted Auditing Standards (GAAS) contains the necessary guidelines that will aid auditors in conducting an audit that will truly reflect the true financial standing of a business entity.

Background
The Generally Accepted Auditing Standards (GAAS) was developed by the American Institute of Certified Public Accountants when it has the authority to oversee and provide guidelines in the conduct of Certified Public Accountants in the Accounting and Audit Profession. “The Auditing Standards Board of the AICPA developed ten generally accepted auditing standards for the audit of financial statements that serves as a foundation for all other standards, including those that have been adopted by the PCAOB. Because the standards are conceptual in nature, an understanding of them provides a foundation to better understand other standards. The said standards are developed into three categories such as the general standards which apply to the auditor and the audit firm, fieldwork standards which apply to the conduct of the audit and the last is the reporting...

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