Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users (Boynton & Johnson, 2006). In auditing there are many attributes that describes the auditor’s work. Elements of the Generally Accepted Auditing Standards are followed by auditors. The Generally Accepted Auditing Standards apply to financial, operational, and compliance audits.
Auditing public traded companies has been effected by the Sarbanes-Oxley Act of 2002, and the Public Company Accounting Oversight Board. Auditors have additional responsibilities because of the act and the PCAOB. Elements of GAAS The three elements of the Generally Accepted Auditing Standards are the general standards, standards field of work, and the standards of reporting. The general standards element refers to qualifications of the auditor and his or her work.
The auditor must have the proper training and be proficient in his or her work. The auditor must be to perform the audit and findings without the influence of the manager of the company. The auditor must meet the requirements of the AICPA’s Code of Professional Conduct. Due professional care is a responsibility of the auditor to review the work and make honesty decisions. Standards field of work is the second element and it pertain primarily to the conduct of the audit at the entity’s place of business (Boynton & Johnson, 2006).
The auditor needs have the proper planning when conducting the audit and be able to supervise those involved in the audit with less experience. The auditor has to be knowledgeable of the entity and its environment, and the internal controls. The auditor needs an understanding of the objectives, strategies, and business risks that are often correlated with the risk of material misstatement in financial statements to plan an effective and efficient audit (Boynton & Johnson, 2006).
The third element is standard reporting requiring the auditor to meet the four reporting standards. The four reporting standard are financial statements presented in accordance with GAAP, consistency in the application of GAAP, adequacy of informative disclosures, and expressing an opinion. The auditor needs to be able to identify the GAAP to be able to specify in the auditor’s report where the GAAP has not been followed under any circumstances. The auditor has to disclose any information that has been false by management.
The auditor is required to give an opinion on the financial statements as a whole. Financial, operational, and Compliance Audits A financial statement audit involves obtaining and evaluating evidence about an entity’s presentation of its financial position, results of operations, and cash flows for the purpose of expressing an opinion on whether they are presented fairly in conformity with established criteria according to the GAAP (Boynton & Johnson, 2006). Financial statements are released to stockholders, creditors, regulatory agencies, and the general public.
Financial audits give lenders information on the company to help with their decision. Operational audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity’s operating activities in relation to specified objectives (Boynton & Johnson, 2006). The element of standards of field work has an important role in operational audits. Operational audits are designed to assess the level of control exercised by management, and identify with management participation, opportunities for improving control.
Compliance audits involves obtaining and evaluating evidence to determine whether certain financial or operating activities of an entity conform to specified conditions, rules, or regulations (Boynton & Johnson, 2006). Compliance audits are a requirement of the Sarbanes-Oxley Act 200. The standards of reporting element of the GAAS are demonstrated in compliance elements. Creditor’s criteria are based on compliance audits. Sarbanes-Oxley Act of 2002 & PCAOB
The Sarbanes-Oxley Act of 2002 gave the PCAOB authority to establish auditing standards, quality control standards, and independence standards for auditors of public companies; and to inspect the work of public company auditors (Boynton & Johnson, 2006). Public companies are being penalized for false and misleading financial statements. Sections 302, 303, and 305 are described the changes that are required by the Act. The PCAOB conducts audit reports of 100 public traded companies annually. The PCAOB has to evaluate the financial statements regularly.
Additional requirements on auditors The Sarbanes-Oxley and the PCAOB has two titles that express the additional requirements of the auditors. The auditors are supposed to be more honest and efficient. Internal control reporting requirement would cause significant increases in external auditing costs. Sarbanes-Oxley Act requires the audit committee of each issuer to be directly responsible for the appointment, compensation and oversight of the external auditor. Conclusion The GAAS has many different functions that can affect the auditing.
The organization that I work for has use for all the element of the GAAS. The company uses the operational audit the most. The Sarbanes-Oxley Act of 2002 and the PCAOB has cause the accounting department to more efficient and proficient in the auditing process by putting more responsibility on the auditors. Reference Boynton, Johnson ( 2006). Modern Auditing. Retrieved from on University of Phoenix on August 22, 2011 Operational Audits. http://www. mcgill. ca/internalaudit/objectives/primary/operational/