Generally Accepted Auditing Standards GAAS

Summary

This session explores the Generally Accepted Auditing Standards (GAAS), emphasizing the framework that guides auditors, akin to GAAP in accounting. The discussion covers the purpose of audits, which is to provide reasonable assurance on financial statements' fairness, not absolute assurance. It outlines the roles of management and auditors, including management's responsibility for financial statements and internal controls, and auditors' need for competence, ethical standards, and professional skepticism. The session also delves into the auditor's tasks like planning, risk assessment, evidence collection, and reporting, highlighting the importance of understanding internal control systems and the concept of materiality in audits.

Takeaways

• 📚 GAAS stands for Generally Accepted Auditing Standards, which is a framework for auditors, similar to how GAAP is for accountants.
• 🎯 The purpose of an audit is to provide reasonable assurance that financial statements are free from material misstatement, whether due to error or fraud.
• 👔 Management is responsible for the preparation of financial statements, establishing and maintaining internal control, and ensuring their reliability.
• 🔍 Auditors must possess the necessary competence, skills, and ongoing professional training to perform an audit effectively.
• 🤔 Professional skepticism and judgment are critical for auditors to question and evaluate evidence during the audit process.
• 🏛️ Ethical standards, including independence, are paramount for auditors to maintain integrity and objectivity in their work.
• 📈 Materiality is a key concept in auditing, referring to the threshold at which a misstatement could influence a user's decision-making.
• 🔍 Assessing the risk of material misstatement involves understanding the client's business and industry to identify potential areas of risk.
• 📊 Auditors must plan and supervise the audit process, applying suitable materiality thresholds and ensuring the work meets professional standards.
• 📋 The audit report is a culmination of the audit process, where the auditor expresses an opinion on the fairness of the financial statements based on the evidence gathered.

Q & A

What does GAS stand for in the context of auditing?

GAS stands for Generally Accepted Auditing Standards, which are the standards that auditors follow when conducting audits.

Who sets the standards for GAS?

The Accounting Standards Board sets the standards for GAS, similar to how FASB sets the standards for GAAP in accounting.

What is the purpose of an audit according to GAS?

The purpose of an audit is to provide a reasonable assurance that the financial statements are free from material misstatement, whether due to error or fraud, and to confirm their fair presentation in line with the relevant framework.

What are the management responsibilities during an audit?

Management is responsible for the preparation of financial statements and related notes and disclosures, as well as establishing and maintaining internal control.

What are the auditor's responsibilities under the principles underlying financial statement audit?

The auditor's responsibilities include being competent and capable, adhering to relevant ethical standards, maintaining professional skepticism, exercising professional judgment, planning the audit, setting materiality levels, assessing the risk of material misstatement, and gathering sufficient appropriate evidence.

What does the term 'reasonable assurance' mean in auditing?

Reasonable assurance in auditing means that the auditor provides a high level of confidence in the financial statements, but it does not guarantee absolute accuracy as it is not possible to detect all possible misstatements.

Why is the auditor required to exercise professional skepticism?

The auditor is required to exercise professional skepticism to maintain a questioning attitude, being vigilant for signs of potential misstatements due to fraud or errors, and critically evaluating the evidence.

What is the role of materiality in an audit?

Materiality in an audit is a threshold that helps the auditor determine whether a misstatement in the financial statements is significant enough to influence the decisions of a rational user of the financial statements.

How does the auditor assess the risk of material misstatement?

The auditor assesses the risk of material misstatement by evaluating the risks of significant inaccuracies in the financial statements ahead of time and tailoring audit procedures accordingly, which requires a deep understanding of the client's business and industry.

What is the final step an auditor takes after gathering evidence during an audit?

The final step an auditor takes after gathering evidence is to issue a report, which includes expressing an opinion on the fairness of the financial statements according to the relevant framework.

What does the acronym CPA stand for and what is its relevance to auditing?

CPA stands for Certified Public Accountant, and it is relevant to auditing because CPAs are professionals who perform audits and must adhere to ethical standards and maintain their professional competence.