Generally Accepted Auditing Standards Paper
In any business, especially the one that I work for, there are certain functions that have to be done in the daily flow of the business. Auditing is no exception to this. I work in the accounting department for the Census Bureau, which is a federal agency. In specific, I work for the Quality Assurance and Call Team side of accounting in this financial division. This means that one of my primary functions is the pre-certify invoices, travel, and any other miscellaneous payment that is required. Pre-certification is just another way of saying audit in our division. Having these functions as a primary job duty, it is imperative to be aware of the generally accepted auditing standards, their application to financial, operational and compliance audits, as well as the Sarbanes-Oxley Act of 2002 (SOX) and the Public Company Accounting Oversight Board (PCAOB).
The Generally Accepted Auditing Standards are standards that were created in order to help to unify the auditing techniques and performance in order to create quality in the accounting and auditing profession. For the United States, these are standards that were created by the American Institute of Certified Public Accountants. According to Modern auditing: assurance services and the integrity of financial reporting, there are 10 standards which are vary by categories such as general, reporting, and field work. (Boynton, W. & Johnson, R., 2007) In reference to how these standards apply to the financial, operational, and compliance auditing in companies, these standards are guidelines that should be applied by auditors and any of their assistants that deal with financial, operational, and compliance auditing. These standards address the expectations of how reports should be stated for financial statements, any errors or principles that are lacked, any issues with disclosures, as well as any opinion that needs to be stated in regards to the financial statements. In terms of operation, the standards that are more in line with field work express what is expected with planning work, supervising any assistants, researching and being aware of a business and its environment, and being able to obtain evidence by following auditing practices and procedures. With compliance, there are general standards that mention having the proper training to perform audits, independence in auditing, and having due professional care as well. The standards are very specific in addressing auditing issues in relation to financial, operational, and compliance auditing.
The Sarbanes- Oxley Act of 2002 (SOX), as well as the Public Company Accounting Oversight Board (PCAOB) both have serious effects on auditing of publicly traded companies. This reform was created because of numerous scandals and wrongs done in the accounting profession, specifically auditing, at that time which cost users and investors billions and caused the stock market to collapse. This act covers certain issues such as internal controls, financial disclosures, independence of auditors, conflicts of interest, resources and authority, reports and studies, accountability, penalties enhancement, corporate tax returns, corporate fraud accountability, as well as corporate governance. (Boynton, W. & Johnson, R., 2007) It was the lead that created the board that is in charge of regulating, overseeing, inspecting, and disciplining any accounting firm that is not in compliance with this acts or their independent roles as auditors in the accounting profession. The SOX and PCAOB have effected the auditing of publicly traded companies because auditors now have to monitor and aggressively oversee their offices and practices to make sure that they are in line with being independent, having better internal controls, and overall being able to avoid scandals, such as Enron, that created this act in the first place. Auditors of publicly traded companies now know that there are serious disciplinary actions for not complying with the standards and riles set forth and these disciplinary and inspecting actions are actively being done by PCAOB. This means that there is no room for mishaps and errors as there was before when there was no one checking behind auditing companies as PCAOB is now.
There are also additional requirements that are placed on auditors with the SOX act. There are plenty of new and additional procedures and steps for auditing mentioned within SOX. In terms of auditor independence, it was mentioned that there is a new auditor approval requirements, new auditor reporting requirements, as well as requirements for auditor partner rotations. SOX also now does not permit an auditing company to perform any other non-audit related services to the same company in which it gives auditing services to. With this new law, the Securities and Exchange Commission (SEC) is now required to create rulings in order to have companies to comply with the new law. Also with corporate responsibility, SOX requires that the upper management, such as the CEO or CFO, approve or certify that their financial reports are indeed correct in order to keep the integrity of the report. They are to do this quarterly. There is also tightening of requirements for financial transactions which include pro-forma figures, off balance sheet transactions, and certain stock transactions. (Boynton, W. & Johnson, R., 2007) There are many new requirements mentioned in SOX that affect auditors.
Overall, the GAAS are standards that outline what is to be expected of an auditor and auditing companies. SOX was created because of the reactions of the scandals of companies such as WorldCom, Tyco, and especially Enron. From SOX, the PCAOB was created in order to regulate the compliance of the SOX act by auditors and their companies. Obviously, the creation of such an act effected the auditing requirements of the financial, operational, and compliance auditing as well as the auditing of publicly traded companies. Moreover, The GAAS are standards that outline the expectations of auditors, while SOX is the authoritative act that outlines additional expectations and PCAOB oversights these requirements, additions, expectations, and disciplinary actions if necessary.
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Boynton, W. & Johnson, R. (2006). Modern auditing: assurance services and the integrity
of financial reporting. (8th ed.) John Wiley & Sons Inc.