Generally Accepted Auditing Principles Essay

Generally Accepted Auditing Principles Generally Accepted Auditing Principles There are many different types of audits including financial statements audit, the operational audit and the compliance audit. Either an internal auditor or an external auditor from another firm can conduct these various audits.

“The American Accounting Association defines auditing as a systematic process of objectively obtaining and evaluating the accounts of financial records of a governmental, business, or other entity based on established criteria” (www. referenceforbusiness. com, 2009).

Essentially the review is done to enable an accountant to assess the representations of management and to consider whether the financial statements conform to the generally accepted accounting principles, or GAAP. There are several elements of the general accepted auditing standards or GAAS. Some of the elements of the GAAS include independence in fact and appearance, professional care in performing the audit, internal control evaluation, evidence sufficient to base an opinion, according to GAAP, consistency and the technical training and proficiency of the auditor.

All of these elements play equally important roles in the GAAS and all elements should be qualities of an auditor. The auditor is required to make very difficult decisions and to abide by all the standards for their profession. Therefore to be an auditor is a difficult and stressful career that many people will not be able to do. The elements of the GAAS are very important when pertaining to financial, operational and compliance audits.In financial, operational and compliance audits, it is important to have independence in fact and appearance because the auditor will be held responsible for the information that they provide.

Many people rely on the information that auditors provide and the information the auditor provides must not sway from the facts. It is also important that the auditor takes professional care in performing the audit so that information is not overlooked or the wrong assumptions are made. The auditor must also be very aware of the internal controls of the business. If he company has poor internal controls, it leaves more room for unethical behavior. Auditors need to be able to recognize this and to report accurately on it. Before an auditor writes up the report for either the financial, operational or compliance audit, they must gather sufficient evidence to base their opinion. It is against most policies and unethical to provide an opinion if the auditor does not have all the facts. This could lead to the creation of wrong opinions that can hurt the business, the auditor or the investors that rely on the information that is provided.

Auditors are also responsible to abide by the GAAP. The GAAP is set up to create standard rules that all publicly held companies are responsible to follow and the auditor must also ensure the business if following these rules. Consistency is also important when conducting an audit because the results must be able to be understood by the target audience. The auditor should also be consistent in how they perform the audit so that the results do not vary from audit to audit due to inconsistencies of the actual performance of the audit.Since the auditing profession is held to such a high standard, the auditor should also keep up to date on all technical or legal training. This will ensure that the auditor is providing the most up to date information that the audit requires. A financial audit is an audit designed to examine the financial statements, records and related operations to determine if the business is adhering to the GAAP. This means that the auditor will determine whether the company has followed the financial reporting standards.

An operational audit is designed to examine the organizations activities to assess the performance of the business and to develop various recommendations to improve the use of the business resources. Finally, a compliance audit is designed to determine whether an organization is following established procedures or rules. The company that I currently work for conducts compliance audits to ensure that businesses are adhering to their wholesale security agreement and are following all government rules and regulations.As an auditor, it is my responsibility to adhere to all the policies that my company imposes on myself and to follow all government rules and regulations while conducting the audit. The Sarbanes Oxley act has had many affects on audits of publicly traded companies. The Sarbanes Oxley act is designed to protect investors of publicly traded companies because they are presumed to be at a further distance from the management of the company and are therefore more vulnerable to inaccurate reporting.Title I of the Sarbanes Oxley act creates an independent Public Company Accounting Oversight Board, which is under the Securities and Exchange Commission. The PCAOB regulates, registers, inspects and oversees companies that audit publicly traded companies.

Title II of the Sarbanes Oxley act legislates the behavior of auditing firms. “Its most important provisions severely restrict auditing firms from carrying out compensated activities for their auditing clients that fall outside the boundaries of auditing narrowly viewed” (www. efinitions. uslegal.

com, 2009). This prevents auditing companies from engaging in other activities that could affect the auditing standards. For example, the auditing company will not be able to provide services like bookkeeping, accounting, financial information systems design, or appraisals to the company in which they audit. This is because the audit firm may be influenced in their audit practice in favor of a client from which they are getting other profitable business.Title II also requires that audit partners are audited every five years of service auditing a client and also prevents financial officers of the audited firm from ever having been employed by the audit company. Title VIII also relates to the auditing profession because it requires the auditor to keep all paper work related to the audit for five years.

This title also makes it a felony for anyone to destroy documents or to create fraudulent documents to thwart federal investigations. In my current job, we are required to keep all documentation that we obtain from the business we audit and to mail it to our office for safekeeping.As auditors, internal auditors ensure that we are following all of the company rules and regulations and ensure that we are not putting the company in any unnecessary risk for violating these laws. Because of both the Sarbanes Oxley act and the PCAOB, auditors are more valuable now than what they were years ago. Both the Sarbanes Oxley act and the PCAOB make penalties for creating fraudulent reports more severe than they ever were before. Both also place more regulations on the auditing industry to help prevent major losses to investors due to inaccurate reporting.I believe that both are very important in the current environment because in a time of recession, it can be very easy for large corporations to create inaccurate financial reports to help keep the company stocks high. References: Auditing.

(2009). Retrieved from: http://www. referenceforbusiness.

com/encyclopedia/Assem- Braz/Auditing. html on August 13, 2010. Sarbanes Oxley Law & Legal Definition.

(2009). Retrieved from: http://definitions. uslegal. com/s/sarbanes-oxley/ on August 13, 2010.