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Unformatted text preview: CHAPTER 2 Professional Standards Review Questions 2-1 The Sarbanes-Oxley Act of 2002 created the PCAOB and gave this body authority to develop auditing standards for the audits of public companies. The AICPA has the authority, based on general acceptance (and adoption by state boards of accountancy and other regulatory bodies), to develop auditing standards for audits of nonpublic companies. 2-2 Generally accepted accounting principles are accounting principles which have substantial authoritative support, such as approval by the Governmental Accounting Standards Board or the Financial Accounting Standards Board, or its predecessor, the Accounting Principles Board. These standards provide the criteria for financial reporting, including the nature and content of financial statements. Generally accepted auditing standards (GAAS) refer to the 10 broad standards and the Statement on Auditing Standards (SASs) set forth by the Auditing Standards Board of the AICPA. Generally accepted auditing standards vary depending upon whether the audit is of a public or nonpublic company. Auditing standards for public companies are established by the Public Company Accounting Oversight Board. Examples of generally accepted accounting principles are the matching principle, the realization principle, and the going concern assumption. There are a number of others, but no official list exists. Examples of generally accepted auditing standards (within the general standards subgroup) would include: (1) The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. (2) In all matters relating to the engagement, an independence in mental attitude is to be maintained by the auditor or auditors. (3) Due professional care is to be exercised in the performance of the audit and the preparation of the report. 2-3 The usual avenues for an individual to meet the requirement of "adequate technical training and proficiency as an auditor" are obtaining a college or university education with major work in accounting and auditing, experience in public accounting (auditing experience with the GAO or in internal auditing is a possible alternative), and participation in continuing education programs. 2-4 The generally accepted auditing standards (GAAS) consist of 10 broad general standards developed by the AICPA and officially adopted by the AICPA membership. The Statements on Auditing Standards (SASs) are codified within the 10 generally accepted auditing standards. Auditors must justified departures from the SASs. The SASs are more detailed and specific than the 10 generally accepted auditing standards. 2-5 The first Statement on Auditing Standards issued was a codification was a codification of 54 statements previously issued over many years by the Committee on Auditing Procedure, a predecessor of the ASB. Thus SAS 1 deals with a great variety of topics and exceeds 200 pages in length. The rest of the SASs typically deal with a single auditing topic.The rest of the SASs typically deal with a single auditing topic....
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- Fall '11