AICPA Auditing Standards

The audit profession is a relative new comer to the accounting world. The Industrial Revolution, with the growing business sector, was the spark that resulted in auditing techniques being sought out and utilized. Initially, audit techniques and methods were adopted by companies to control costs and detect fraud, which is more closely aligned with internal auditing. However, the need for mandatory oversight of public companies was recognized after the great stock market crash of 1929 (Byrnes, et al., 2012). This brought about the Securities and Exchange Act of 1934 creating the Securities and Exchange Commission (SEC). At that point, the SEC was tasked with

In the Sarbanes-Oxley Act of 2002, the audit committee is responsible for adequate supervision and reporting and for responding to:

When auditing a publicly held company, auditors need to observe principles. The ethical principles of the American Institute of Certified Public Accountants (AICPA) Code of

3 – Public Company Accounting Oversight Board (PCAOB) (source: PYP7-6 Kimmel textbook.) The PCAOB was created as a result of the Sarbanes-Oxley Act. It has oversight and enforcement responsibilities over CPA firms in the United States.

“ In order to prevent fraudulent financial reports and statements, the American Institute of Certified Public Accountants(AICPA) has created ethical standards” (Ethical standards in a financial statement, 2011). These standards aim to make financial professionals accountable for their accounting practices. This includes the integrity of financial reporting and ensuring financial reporting is done fairly and factually. Financial accountants and professionals should maintain professional integrity, objectivity, and independence to reduce the risk of resulting legal action, loss of profits, and a poor reputation if improper financial reporting is done (Ethical standards in a financial statement, 2011).

First, Congress saw the need to create an independent body to oversee the audit of public companies that are subject to the securities laws. PCAOB was established to protect the investors and further the public interest in the preparation of informative, accurate, and independent audit reports for public companies. Before the SOX, The

The American Institute of Certified Public Accountants (AICPA) is a professional accounting organization whose members are certified public accountants (CPAs). The AICPA published the generally accepted auditing standards (GAAS). GAAS are those guidelines which auditors must follow while conducting an audit of a company's financial statements. Generally accepted auditing standards are divided into three main areas: general standards, fieldwork, and reporting.

The Financial Accounting Standards Board goes through an elaborate information gathering process before issuing their standards. Firstly, an issue is identified and placed on the Board 's agenda by the Emerging Issues Task Force. Secondly, a task force of knowledgeable persons is appointed to advise the Board on the issue. Thirdly, the Board 's technical staff investigates the issue. Fourthly, a discussion memorandum on the issue is then written and distributed to interested parties. Fifthly, the

The Sarbanes-Oxley Act has many provisions. A few of the major provisions include the creation of the Public Company Oversight Board (PCAOB), Section 201, 203, 204, 302, 404, 809, 902, and 906. The PCAOB was the first true oversight of the accounting industry. It oversees and creates regulations, and it will monitor and investigate audits and auditors of public companies. The PCAOB has the authority to sanction firms and individuals for violations of laws, regulations, and rules. Section 302 requires the CEO and CFO to certify that they reviewed the financial statements, and that they are presented fairly. Section 404 requires management to state whether internal control procedures are adequate and effective, and requires an auditor to attest to the accuracy of the statement. Section 902 states that “It is a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object’s integrity or availability for use in an official

The swath of change brought about by Sarbanes-Oxley is wide and deep. The primary changes resulted in the creation of the Public Company Accounting Oversight Board, the assessment of personal liability to auditors, executives and board members and creation of the Section 404. That section refers to required internal control procedures, which did not exist before Sarbanes-Oxley. Public companies are now required to include an internal control report with their annual audit. The oversight board is responsible for monitoring public accounting companies, and works with the SEC. Based on size, accounting forms undergo reviews every one to three years. In addition to the board reviews, public accounting firms now carry personal liability for their

Public companies issuing securities, public accounting firms, and firms providing auditing services whether they are domestic or foreign must comply with Sarbanes-Oxley. (Sarbanes-Oxley Act Section 404, 2002) Additionally, publicly traded companies with a market capitalization greater than $75 million must comply with these new rules. (Don E. Garner, 2008) A company’s management is required to provide an external auditor with all financial statements for the current review period. Upon reviewing these statements the auditor issues a report classified as unqualified, unqualified with explanation, qualified, adverse, or disclaimer based on what they find or do not find. All public companies reports are available on the Securities Exchange Committees website, below is a sample of what this report looks like. You can imagine what a relief this was for investors, to be able to search any company and find statements solidifying their prospective investment.

The PCAOB gives a new meaning to the public accounting industry. The board must be composed of five members, appointed for a 5-year term, two of which are Certified Public Accountants (CPAs) or have previously been CPAs, and three of which have never been CPAs. The chair of the PCAOB may be a CPA, but only if he has been out of practice for at least five years. "The members must be independent of the accounting profession as no member may, concurrent with service on the board, share in any of the profits of, or receive payments from, a public accounting firm, other than fixed payment such as retirement payments" (4). All members of the PCAOB must be appointed by the Securities and Exchange Commission (SEC). The board performs various jobs which include: "oversee the audit of public companies, establish audit report standards and rules, inspect, investigate and enforce compliance on the part of registered public accounting firms and those associated with the firms" (4). Not only do public accounting firms who audit the financial reports of public companies have to register with the PCAOB, but foreign public accounting firms must register as well. The standards of auditing include:

For nonpublic companies auditing guidance are issued by the American Institute of Certified Public Accountants, AICPA. Prior to PCAOB, AICPA served as the primary governing body of public accounting profession. Since the roles have changed with PCAOB regarding the auditing standards for public companies, the AICPA is still developing standards for the nonpublic companies. The organization has developed four fundamental principles that govern an audit conducted in accordance with GAAP. The principles are:

For purposes of the Australian Auditing Standards, the expression "logically strategies" implies assessments of budgetary data through examination of sensible connections among both money related and non-monetary information. Analytically strategies likewise incorporate such examination as is vital of recognized variances or connections that are contrary with other applicable data or that contrast from expected values by a critical sum. Logically methods likewise envelop such examination, as is vital, of distinguished changes or associations that are incongruent with other pertinent data or that contrast from expected values by a huge sum. Scientifically

These changes were outlined in the Sarbanes Oxley Act of 2002 (SOX). SOX completely revolutionized financial reporting, requiring senior management of firms to sign off on each financial statement that the company issues. It also stipulated that wrongful doing can result in not only termination but also imprisonment. SOX amplified the requirement for companies, requiring firms to maintain proper levels of internal controls when it comes to operating activities. SOX also established the creation of the Public Company Accounting Oversight Board (PCAOB) which implemented stricter auditing standards for public accounting firms. Not only were accounting firms required to consider internal controls, but they were also required report any significant deficiency directly to the board of directors. SOX stressed the importance of internal controls, and within internal controls it established the need for segregation of duties. Since this time, there have been many additions to accounting policies regards segregations of duties, and many functions of the business process dedicated to it.