When auditors review financial records, a set of guidelines ensures consistency across the board. The generally accepted auditing standards help manage the quality of a financial audit, no matter who is conducting it. Keep reading to learn more about these standards and what they mean for your business.
What are generally accepted auditing standards (GAAS)?
The generally accepted auditing standards were created by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA). These guidelines were designed to ensure a specific standard of consistency, accuracy, and accountability across any auditor’s review and resulting reports.
What is the reasoning behind the GAAS?
The US Government’s Securities and Exchange Commission (SEC) requires all public companies to be reviewed by external auditors. All businesses must keep accurate financial records, but without specific guidelines, these could vary widely from one organization to the next. Creating the generally accepted auditing standards provides a framework for both businesses and independent auditors to follow.
Auditors can review and report on a company’s financial statements according to these guiding principles, ensuring consistency and compliance.
10 generally accepted auditing standards (GAAS)
There are three sections contained within the GAAS framework, covering general standards, fieldwork standards, and reporting standards. The 10 generally accepted auditing standards are summarized within the three sections as follows:
Proficiency: The auditor must have sufficient training to perform the review.
Independence: The auditor must be external and independent of the company that is being audited.
Due care: The auditor is responsible for exercising due professional care throughout the auditing and reporting process.
Planning: The auditor is responsible for planning work and supervising the auditing team.
Research: The auditor must have a proper understanding of the business environments, including internal controls that could impact the accuracy of financial statements.
Evidence: The auditor is responsible for obtaining all necessary evidence to compile a report, using applicable standard audit procedures to form conclusions.
Principles: The report must state whether the financial statements meet all generally accepted accounting principles (GAAP).
Inconsistency: If there are any inconsistencies in the financial statements related to these accounting principles, these must be identified in the report.
Inadequate Disclosure: Another factor that must be highlighted in the report is inadequate disclosures in the financial statements.
Opinions: The auditor must state a concluding opinion about the financial statements. When an opinion cannot be stated, reasons must be given.
Finally, if the auditor’s name appears anywhere in the financial statements, this must also be explained.
Preparing for an audit
The generally accepted auditing standards are meant to provide a guideline for auditors, but they can also be useful for businesses. Keeping accurate, consistent financial records make the audit run more smoothly. Companies can look at the generally accepted accounting principles (GAAP) for further guidance on reporting standards.
Updates to the GAAS
Like any financial framework, the GAAS is updated by the ASB from time to time. After a new set of standards was released, the two were merged in 2012 as part of the Clarity Project to keep the GAAS in line with international auditing standards. Although GAAS is meant to apply to public companies, the same standards tend to be used for private company audits. As a result, auditors need to stay on top of the latest guidelines and regulations, whether they’re working in the public or private sector.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.