General Accounting Principles

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...