Auditing Standards: Role, Impact & Relationship with GAGAS

Instructor: Morgan Gannarelli
In this lesson, we discuss the role and impact of auditing standards. We will also go over how these standards relate to GAGAS (Generally Accepted Government Auditing Standards).

Auditing Standards

Did you know there are more than one set of auditing standards? There is GAAS, which is Generally Accepted Auditing Standards, and GAGAS, which is Generally Accepted Government Auditing Standards. Why would we need two sets of standards?

GAAS allows auditors to issue an unqualified opinion even if they find that an organization's internal controls are not functioning well or even nonexistent. GAGAS are the rules for audits mandated by the government. For example, under GAGAS, if your internal controls are weak, a statement will be disclosed in the 'Report on Compliance and on the Internal Control over Financial Reporting.' Either way, both standards are a set of guidelines that auditors use to ensure accuracy and consistency. These standards assist auditors and minimize errors during the audit process.

General Standards

General standards pertain to the auditor having proper training and being capable of performing an accurate audit. Think about it like this: you are a large company with many investors. You just hired an auditor that was not properly trained. During an audit, they did not exercise due professional care in their performance and a material error was overlooked. Now, your investors are starting to question if they want to continue investing in the business.

This sounds scary right? The problem is, an auditor who has not followed auditing standards impacts your business. It is in this section that GAGAS differs from GAAS. Under GAGAS general standards, the organization must have internal controls in place to ensure auditors have professional judgement and possess necessary skills.

Standards of Field Work

In standards of field work, the auditor is responsible for understanding the business and its environment, which includes internal controls. If the auditor needs assistance, they are responsible for making arrangements for help prior to the start of the audit. For example, if an auditor has reviewed the business environment, he or she may decide to bring an assistant on to ensure the process goes smoothly. They makes these arrangements before the audit begins so it progresses without interruption. With GAGAS, the standards of field work can vary depending on the type of audit.

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