Recording-M2 GAAS Intro

Introduction to Generally Accepted Auditing Standards (GAAS)

  • Definition: GAAS are systematic guidelines used by auditors for conducting audits of financial records, primarily financial statement audits.

  • Objective: To provide assurance to the public, including shareholders and creditors, that audits are performed with quality and integrity.

  • Consequences of Non-compliance: Auditors not adhering to GAAS are presumed to have conducted deficient audits.

Factors Influencing Auditing Standards

  1. Nature of the Organization:

    • Type of Company:

      • Is it a US company?

      • Is it an international company?

      • Is it a government entity?

    • Implication: Determines whether US GAAS, International GAAS, or Generally Accepted Government Auditing Standards (GAGAS) apply.

  2. Location of the Company:

    • The physical location influences whether US GAAS or International GAAS is applicable.

    • Audits of US government entities utilize GAGAS, irrespective of their location.

  3. Public Trading of Stock:

    • Publicly Traded: Companies selling stock on public exchanges (e.g., Nasdaq).

    • Privately Owned: Companies not publicly traded.

    • Regulatory Implications:

      • Publicly traded companies: Subject to SEC and PCAOB standards.

      • Non-public companies: Governed by AICPA GAAS.

    • In study materials, publicly traded companies are referred to as "issuers" and privately held companies as "non-issuers."

Basic Principles of Audits

  1. Responsibilities:

    • Auditors must possess competence and capabilities.

    • Compliance with relevant ethical requirements.

    • Maintenance of professional skepticism and exercise of professional judgment.

  2. Performance:

    • Key Elements:

      • Planning the work and supervising assistants.

      • Determining and applying appropriate materiality levels.

      • Identifying and assessing risks of material misstatement.

      • Obtaining sufficient and appropriate audit evidence.

  3. Reporting:

    • Auditors are required to express an opinion regarding the fairness of an entity's financial statements.