Generally Accepted Auditing Standards

The Generally Accepted Auditing Standards (GAAS) refer to the parameters an independent auditor uses to prove the objectivity, relevance, and quality of their audit procedures. Auditors follow GAAS to establish the accuracy and reliability of the audit of accounts procedures they employ and show the veracity of their audit performance.

Reporting is a crucial aspect of this activity. Auditors follow GAAS to prove the reliability of the audits they conduct after careful planning and execution. Formulated by the American Institute of Certified Public Accountants (AICPA) and ratified by the AICPA Auditing Standards Board (ASB), GAAS has 10 standards.

• Generally Accepted Auditing Standards (GAAS) describe the criteria used to assess the effectiveness of the audit procedures conducted by a competent auditor. It aims to boost the accuracy, reliability, and verifiability of audit work.
• The efficacy of an audit conducted by an independent auditor, which involves audit planning, execution, and reporting, can be ascertained using these guidelines.
• The ten standards of GAAS are classified into three groups: General Standards, Standards of Fieldwork, and Standards of Reporting.
• GAAS and GAAP are different standards used at different stages of the accounting and auditing processes. GAAP applies to financial statement preparation, while GAAS is relevant to auditing assignments.

Generally Accepted Auditing Standards are auditing principles set up by the American Institute of Certified Public Accountants (AICPA) that all auditors must follow while auditing an entity’s financial records in the United States. It is a parameter to measure the quality of an audit and the efficiency of auditors. It was introduced in 1972 when a charter issued by the American Institute of Certified Public Accountants (AICPA) mandated auditors to follow the ten standards specified therein.

GAAS applies to auditing jobs undertaken by auditors in the United States. Despite being a regulatory framework defined in the US, AICPA has member auditors from various countries. Thus, GAAS can be considered a global framework for member countries that agree to abide by it. Hence, Generally Accepted Auditing Standards AICPA may act as the baseline for audit work in other countries, too.

Local requirements like language, audit type, industry, and affiliations of auditors, such as Canadian Generally Accepted Auditing Standards & Generally Accepted Auditing Standards Philippines, may be considered while executing auditing tasks in other countries. It is important to note that GAAS is primarily relevant to audit work undertaken in the US, and auditors operating in other parts of the world may adopt them as auditing standards if they follow the AICPA guidelines.

The 10 Generally Accepted Auditing Standards can be classified into three main groups, namely:

#1 - General Standards

• Principle 1: Professionals with sufficient technical expertise and skill are required to conduct audits.
• Principle 2: Auditors must exercise adequate independence and maintain objectivity during audit assignments.
• Principle 3: Audits must be conducted with professionalism and diligence, where auditors seek answers to relevant questions and gather reliable input for reporting.

#2 - Standards of Fieldwork

• Principle 4: Audit assignments must be properly planned and adequately supervised to obtain the right audit evidence.
• Principle 5: Auditors must understand a company’s operations, environment, and internal controls to plan and execute the audit, employing effective audit procedures while doing so.
• Principle 6: Inspection, examination, queries, and confirmations must yield enough audit evidence to provide a reasonable foundation for conclusions about an entity’s financial state.

#3 - Standards of Reporting

• Principle 7: Auditors must check if an entity’s financial statements have been generated in line with Generally Accepted Accounting Principles (GAAP).
• Principle 8: A report must indicate if non-compliance with GAAP or other internal controls was detected during the audit.
• Principle 9: It is important to verify if all material matters and disclosures about an entity’s finances were included in its financial statements.
• Principle 10: Auditors must state their audit opinion in no uncertain terms. If they are unable to form an opinion based on the available audit evidence, a disclaimer of opinion is needed. When auditors sign audit reports, they must explain the audit procedures they employ and how much responsibility they take for the accuracy of the audited financial statements.

In this section, let us see how the principles are applied and what they stand for in organizations.

Example #1

Suppose Jenny is the appointed auditor for audits at Fluxion Labs, a chemical manufacturing unit. She follows Generally Accepted Auditing Standards (GAAS) to ensure the reliability of her audits and assure stakeholders of the accuracy of the audit procedures employed during the audits.

Jenny analyzes Fluxion Labs' business operations, studies its internal controls, and evaluates the risk factors the company faces. At the audit planning stage, Jenny develops a focused audit plan based on Fluxion Labs' specific needs. She outlines the key areas of focus and allocates adequate resources to each audit task. She ensures that her team has the required expertise and experience needed to execute the audit of a chemical manufacturing company effectively.

During the fieldwork stage, Jenny studies Fluxion Labs' financial records, interviews key personnel, and initiates substantive testing to gather audit evidence. She also keeps an eye out for material misstatements. After completing the fieldwork, Jenny reviews her audit findings and forms an opinion on the accuracy and fairness of the company's financial statements. She drafts and signs a detailed audit report that states her opinion, shares disclosures and offers recommendations for improvement.

It can be seen from the above example that Jenny upheld the GAAS principles while conducting the Fluxion Lab audit. She applied her professional competence and independence and used her professional judgment to share an audit opinion about the company's financial position and health.

Example #2

A February 2024 post published on the US Government Accountability Office website talks about the decision made to update the auditing standards applicable to government organizations across the US. The Generally Accepted Government Auditing Standards, called the Yellow Book, have been revised to increase transparency and accountability across government audits conducted to evaluate government programs and spending. This revision overrides the 2018 revision to the said auditing standards.

This shows that auditing standards are framed and applied based on an organization’s auditing requirements.

GAAS and Generally Accepted Auditing Principles (GAAP) differ in terms of how they are applied and at which stage they become relevant. The table below discusses the differences.

This article has been a guide to what are the Generally Accepted Auditing Standards. Here, we compare it with GAAP and explain its examples. You may also find some useful articles here –

• Single Audit
• Audit Evidence
• Special Audit