Before moving towards the topic, understand the word “Auditing” first. Auditing is a systematic process of objectively obtaining and evaluating the evidence regarding the financial statements. The prime purpose of audit is to form an opinion on the information in the financial report and not to identify all possible irregularities. GAAS are the auditing standards that help measure the quality of audits. The auditors review and report on the financial records of organization according to generally accepted auditing standards.
Originally GAAS were developed and issued by American Institute of Certified Public Accountants (AICPA) in 1972. The current GAAS comprises of 10 standards that comes under three following categories-
1. General Standards.
2. Standards of field work.
3. Standards of Reporting.
Let’s understand these three categories of GAAP briefly: -
Ø General standards
This category classifies the standards that the audit should be performed by a person having adequate technical training as an auditor. An independent mental attitude is required by the auditor while dealing with the assignment matters. Professional care should exercised by the person in performing and preparing any report.
Ø Standards of Field work
This category clarifies that the work should be adequately planned and assists and if possible it should be supervised by the professional in the field. The auditors need to have sufficient understanding of internal control so that to plan the audit and determine its nature, timing and the extent that is to be performed in the test. Through inspection, observation, inquiries, and confirmation sufficient competent evidential matter need to be collected so that a reasonable opinion can be obtained regarding the financial statements under the audit.
Ø Standards of Reporting
The report should state whether the financial statements are presented according with generally accepted accounting principles (GAAP). The circumstances in which the principles that have not been consistently observed in current period in relation to the preceding one should be identify in the report. If informative disclosures are there in financial statements than it should be reasonably adequate. The report must contain the expression of opinion of financial statements or an assertion should be there that due to which the opinion is not expressed in the report. Overall in all cases there should be name of the auditor associated with financial statements. If possible the degree of responsibility of the auditor should be mention in the reports.
These were the three categories of generally accepted auditing standards that help in measuring the performance of an entity. The standards of auditing maintain the solvency of firm and other such important financial duties of the management. Thus the management should widely choose their accounting policies and needs to know these auditing standards.