Generally Accepted Auditing Standards


Generally Accepted Auditing Standards are those guidelines
which auditors must adhere to while conducting an audit of
a company's or government entity's financial statements. It
must also be stated in the audit report that the audit was
conducted following Generally Accepted Auditing Standards.
This has been required since 1941 after the investigation
of a large drug company, McKesson & Robbins, Inc., which
had had funds embezzled by its president and his three
brothers. Neither the internal controls or the independent
auditors detected the embezzlement. Generally Accepted
Auditing Standards are divided into three main areas: 1)
General Standards, 2) Standards of Fieldwork, and 3)
Standards of Reporting. Each area contains three or four
specific standards. General Standards There are three
general standards. They deal with technical training and
proficiency, independence, and due professional care. To
have technical training and proficiency means you have the
proper educational background. This is demonstrated by
passing a comprehensive examination. Independence is the
most important attribute of an auditor. An auditor must
remain independent of the client at all times and avoid all
situations that may jeopardize his independence. Due
professional care means working carefully and being willing
to take responsibility for the accuracy of your work.
Standards of Field Work There are three standards of field
work. They address proper planning and supervision,
examination and evaluation of internal controls, and
collecting sufficient and competent evidence. An auditor
must adequately plan his audit in advance and be familiar
with the business and industry of his client. He should
test the internal control system of the client, especially
those controls on which he plans to rely during the audit.
He should obtain the most reliable evidence available and
select the best procedures to obtain that evidence.
Standards of Reporting There are four standards of
reporting. They are concerned with whether the financial
statements are presented in accordance with Generally
Accepted Accounting Principals (GAAP), consistency,
informative disclosures, and an expression of opinion on
the financial statements that have been audited. The audit
report must explicitly state whether the financial
statements have been prepared in conformity with GAAP and
whether or not these principles have been applied
consistently from one year to the next. Unless stated
otherwise, it should be assumed that the informative
disclosures stated in the financial statements are
adequate. Any deficiencies in this area should be
specifically stated in the audit report. Footnotes must
contain all the relevant information needed to be able to
properly interpret the financial statements. Finally, the
auditor must express an opinion on the financial
statements. The auditor should issue either an unqualified,
qualified, adverse, or disclaimer of opinion. The basic
format for each of these opinions is pretty much
pre-established. In a qualified or adverse opinion, an
additional paragraph should be added for each problem found
within the financial statements. A disclaimer of opinion
should be issued any time an auditors independence is
violated or if he is unable to complete the entire audit
for some reason. Conclusion Each of the standards carry
equal weight and should be followed while conducting any
audit whether it is a private business or a governmental
entity. Depending on the specific audit, there may be other
standards which also apply.
Biar, B., and Grinaker, R. (1965). Auditing: The
Examination of Financial Statements. 

 Homewood: Richard D. Irwin, Inc. Carmichael, D., Lilien,
S., & Mellman, M. (1991). 

Accountants Handbook (7th Edition). New York: John Wiley &
Sons. Robertson, J.(1996). 

Auditing (8th Edition). Chicago: Irwin.

Quotes: Search by Author