The Public Company Accounting Oversight Board (PCAOB) maintains external auditing standards for public companies (issuers) registered with the Securities and Exchange Commission (SEC).
As of 2012, PCAOB has 15 permanent standards approved by the SEC and a number of interim standards that reflect generally accepted auditing standards, as described in standards issued by the Auditing Standards Board (ASB), which is part of the American Institute of CPAs (AICPA).
The ASB also issues Statements on Auditing Standards (SASs) that apply to preparing and releasing audit reports for nonissues (companies not required to register with the SEC). AICPA members who audit a nonissue are required by the AICPA Code of Professional Conduct to comply with these standards. As of 2012, there are more than 60 active standards.
For internal auditing, the Institute of Internal Auditors provides a conceptual framework called the International Professional Practices Framework (IPPF) that provides guidance for internal audits. Some of the guidance is mandatory, while others are considered strongly recommended, but not required by law.
The generally accepted auditing standards (GAAS) are the standards you use for auditing private companies. GAAS come in three categories: general standards, standards of fieldwork, and standards of reporting.
Keep in mind that the GAAS are the minimum standards you use for auditing private companies. Additionally, the Public Company Accounting Oversight Board (PCAOB) has adopted these standards for public (traded on the open market) companies. Each audit engagement you work on may require you to perform audit work beyond what’s specified in the GAAS in order to appropriately issue an opinion that a set of financial statements is fairly presented. You need to use professional judgment and exercise due care in following all standards.
General standards: The first three GAAS are general standards that address your qualifications to be an auditor and the minimum standards for your work product:
· As an auditor, you must have both adequate training and proficiency.
· You are independent in both fact and appearance.
· You exercise due professional care in performing your auditing tasks.
Standards of fieldwork: The next three GAAS govern how you actually do your job:
· Your work is adequately planned, and all assistants are properly supervised.
· You gain an understanding of the client and its environment, including internal controls, to assess the risk of material misstatement in the financial statements and to plan your audit.
· The evidence you gather during the audit is appropriate and sufficient to evaluate management’s assertions on the financial statements.
Standards of reporting: The last four GAAS concern information you must consider prior to issuing your audit report:
· You have to state whether the financial statements are prepared using generally accepted accounting principles (GAAP).
· Just as important is to report whether GAAP are consistently applied for all financial accounting. Should this not be the case, you have to report any departures.
· You also have to make sure that disclosures — any additional information needed to explain the numbers on the financial statements — are provided.
· Lastly, you have to include your opinion as to whether the financial statements present fairly in all material respects the financial position of the company under audit.