Generally Accepted Auditing Standards (GAAS)

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Generally Accepted Auditing Standards (GAAS)

Generally Accepted Auditing Standards (GAAS) are a set of guidelines auditors follow when planning, performing, and reporting on audits of financial statements. Established by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA), GAAS promotes consistency, reliability, and transparency in audit work.

Key points

  • GAAS governs how auditors conduct audits; GAAP governs how companies prepare financial statements.
  • GAAS is organized into three sections—General Standards, Standards of Field Work, and Standards of Reporting—which together contain 10 specific standards.
  • Public company financial statements are prepared under GAAP and typically audited by independent auditors as required by regulators such as the SEC.

The 10 GAAS Requirements

General Standards (3)

  1. Technically competent: The auditor must have adequate technical training and proficiency.
  2. Independence: The auditor must maintain independence of mental attitude in all matters related to the audit.
  3. Due professional care: The auditor must exercise due professional care in performing the audit and preparing the auditor’s report.

Standards of Field Work (3)

  1. Planning and supervision: The auditor must adequately plan the work and properly supervise any assistants.
  2. Understanding the entity: The auditor must obtain sufficient understanding of the entity and its environment, including internal control, to assess risks of material misstatement (error or fraud) and to design audit procedures.
  3. Sufficient appropriate evidence: The auditor must obtain sufficient, appropriate audit evidence through procedures to provide a reasonable basis for an opinion.

Standards of Reporting (4)

  1. GAAP conformity: The auditor must state whether the financial statements are presented in accordance with generally accepted accounting principles.
  2. Consistency: The auditor must identify circumstances where accounting principles have not been consistently observed between periods.
  3. Disclosure adequacy: If disclosures are not reasonably adequate, the auditor must state this in the report.
  4. Opinion or disclaimer: The auditor must either express an opinion on the financial statements as a whole or state that an opinion cannot be expressed, explaining the reasons. The report should clarify the nature of the auditor’s work and degree of responsibility.

GAAS vs. GAAP

  • GAAP (Generally Accepted Accounting Principles) are accounting rules issued primarily by the Financial Accounting Standards Board (FASB). They dictate how companies record and report financial information.
  • GAAS are the auditing standards auditors use to evaluate whether those GAAP-based financial statements are presented fairly and free of material misstatement.
  • In short: GAAP governs preparation; GAAS governs examination.

Common Questions

Bottom line

GAAS defines the professional and procedural standards auditors must meet to provide reliable audit opinions. While GAAP governs how companies prepare financial statements, GAAS governs how auditors examine and report on those statements—ensuring audits are performed with competence, independence, adequate planning, sufficient evidence, and transparent reporting.