Question 1
Generally accepted auditing standards refers to the set of guidelines that auditors use when conducting company financial audits and ensures consistency, accuracy and verifiability of the auditor’s actions and reports. The main elements of GAAS are general standards, standards of fieldwork and standards of reporting. The general standards require that the auditor have the necessary technical training and proficiency, maintain independence in audit matters and should exercise due professional care during the performance and preparation of the audit. Standards of fieldwork hold that the auditor should adequately plan for the audit work, obtain sufficient understanding of the enterprise and should obtain sufficient audit evidence. Lastly, the standards of reporting require that the auditor categorically state whether generally accounting principles were followed, should identify instances where the report was not followed and whenever there are insufficient disclosures, the auditor should disclose that and the auditor is required to express an opinion with regards to the financial statements.
Question 2
GAAP provides the guidelines used in obtaining evidence about companies presentation of their financial position when conducting financial statement audits. The evidence obtained includes results of cash flows and operations for purposes of giving an opinion for the financial data users. In order to ensure independence, majority of the states have legislated that only CPAs are required to conduct financial statement audits while other corporations hire external auditors to help in enforcing the GAAS guidelines.
Operational audits evaluate the company`s effectiveness and efficiency in regards to the operational activities relating to specific objectives. Field work area standards of auditing play a critical role in carrying out operational audits. Importance is placed on the effectiveness and efficiency of the auditor`s reports and recommendations for making improvements in the entity.
The compliance audit is conducted in order to establish whether an entity is acting in accordance with the laid down rules and regulations in both financial and operational activities. The audit indicates the requirements of SOX and the GAAS`s elements of financial reporting.
Question 3
The SOX Act requires entities to have dual-purpose audit that conducts audits on both the management assertions and financial statements. SOX influences how the auditors are supposed to perform their duties (King & Case, 2014). Notably, there are precise procedures that should be strictly followed in obtaining audit evidence. Additionally, the Act outlines the manner in which internal controls are audited since the auditor`s work is to offer opinion on an entity`s internal control. In order to improve the overall effectiveness and efficiency of an audit, the auditing techniques that were used prior to SOX were deemed unacceptable.
Question 4
Auditors are supposed to comply to not only the PCAOB auditing standard no. 6 but also other requirements such as presenting precise documentation to give written records of the basis of the auditor`s opinion, auditing the internal controls that is uniquely integrated with the audit of financial statements and making reports on the previously documented materials. Other requirements by SOX require that auditing companies get restricted from providing the entities with other non-auditing services.
The quest to improve regulations of the publicly traded entities resulted in news laws getting passed in order to enable the following of laid down procedures both by the auditors and management of an entity. Majority of the standards required by the auditing teams are as a result of the recently established criteria by GAAS, SOX and PCAOB standards.
References
King, D. L., & Case, C. J. (2014). Sarbanes-Oxley act and the public company accounting
oversight board's first eleven years. Journal of Business and Accounting, 7(1), 11.
