Auditing Research Paper

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. It must also be stated in the audit report that the audit was conducted following GAAS.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit

The PCAOB is charged with establishing and enforcing auditing, quality control, ethics and independence standards and rules for public company accountants. The SEC will not accept an audit report from an accounting firm that is not registered with the PCAOB. Thus, SEC reporting companies must engage the services of a registered public accounting firm. The PCAOB is funded by new fees imposed on publicly-traded companies based on their market capitalization – the fees range from as little as $100 for the very smallest companies to more than $1 million for a handful of the largest companies.[4]

The first title of the Sarbanes-Oxley Act of 2002 relates to the Public Company Accounting Oversight Board (PCAOB) division. The Sarbanes-Oxley Act provided for the creation of PCAOB as an oversight organization to regulate the methods and procedures for auditors while they are performing an audit on a publically traded company. PCAOB is in charge of registering auditors that will be participating in publically traded company audits in addition to monitoring the quality of the audit work that is produced. PCAOB also establishes guidelines and directives that are applicable to all publically traded company audits. Lastly, PCAOB not only monitors the work and actions of independent audit firms, they sanction and enforce disciplinary measure against firms

“Sarbanes-Oxley Act of 2002” mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession” (U.S. Securities and Exchange Comissions).

To start, the agency assigned to oversee the implementation of the Sarbanes-Oxley Act is the Securities and Exchanged Commission (SEC). It created the Public Company Accounting Oversight Board (PCAOB) to monitor and evaluate auditing reports from accounting firms to ensure the quality of financial statements and that full corporate governance is being carried out. It sets a standard that all firms must follow closely. PCAOB is an independent organization whose primary role is to catch and recognize any suspicious and unethical activities in accounting firms and oversee that firms are following the compliances rules of SOX. A typical auditing report created by PCAOB is divided into two parts. According the Nagy (2014), the first part consists of a list of any flaws in compliance and auditing errors and the second part is quality control. The purpose of creating PCAOB is to promise investors and the general public that firms are following the strict compliance policy of SOX and that the SEC is aware of the financial situation of companies because it is keeping a close eye on monitoring business

The Auditing Standards Board has launched the Clarity Project (Lindberg & Seifert, 2011) which is an effort to make the U.S. Generally Accepted Auditing Standards (U.S. GAAS) easier to comprehend in the eyes of non-public businesses. “The Clarity Project will result in the first complete redrafting and recodification of U.S. GAAS since 1972” (Morris & Thomas, 2011, para. 2). Four of the most significant changes are: changing the format of the standards so they are more consistent and readable, the wording in the auditor’s report, group audit standards, and the authoritative status on the 10 generally accepted auditing standards (Morris & Thomas, 2011). The Clarity Project also includes the process of integrating the U.S. GAAS with International Standards on Auditing (ISA).

According to PCAOB (2015), “the Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation established by the Sarbanes-Oxley Act. The Board is composed of five members appointed by the Securities and Exchange Commission. It was modeled on private self-regulatory organizations in the securities industry—such as the New York Stock Exchange—that investigate and discipline their own members subject to Commission oversight. Unlike these organizations, the Board is a Government-created entity with expansive powers to govern an entire industry.”

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:

The Public Company Accounting Oversight Board refers to a nonprofit corporation that was established congress to supervise the audit process of public companies so as to protect the public and the investors’ interest by enhancing independent, accurate and informative audit reports (DeFond, 2010, P. 105). The board also supervises the audits of dealers and brokers including reports on compliance that are filed according to the federal laws on securities so as to enhance the protection of investors. The Act that created the Public Company Accounting Oversight Board requires that all auditors of the United States companies are subjected to independent and external supervision. Initially, the performance of the PCAOB was self-regulated. The board comprises five members that are appointed for a term of five years by the Securities Exchange Commission (Daugherty & Tervo 2010, p. 200).. The Securities Exchange Commission has the supervisory power over the Public Company Accounting Oversight Board including the endorsement of the board’s budget, standards as well as rules. The Public Company Accounting Oversight Board I s funded through the yearly accounting support fee

An auditor evaluates the contents of a financial report against the standards and laws that apply to

Audits are the most important type of assurance. An audit which is carried out by a practitioner, is an independent opinion on financial statements of a company assessing the likelihood on how reliable, true and fair they are and if they have been created using the correct financial reporting structure, they are intended for the use of current shareholders and all parties using a businesses financial accounts.

Auditors have requirements and public expectations. Auditors are required to have a high level of technical competence, free from bias, and concern for the integrity of financial reports. Once serving the public, the public expects auditors to find fraud, require accounting principles, and be independent from management. It is important for auditors to be independent from the client company, otherwise they will lose public trust. Users believe that an auditor who own shares in a client company might mislead them into believing that the company condition

The Public Company Accounting Oversight Board provides oversight for auditors of public companies, including establishing auditing and quality control standards for public company audits, and performing inspections of the quality controls at audit firms performing those audits (Arens, Elder, & Beasley, 2010). The PCAOB has responsibility for establishing auditing standards for public companies, while the Auditing Standards Board (ASB) of the AICPA establishes auditing standards for private companies. The ASB previously had responsibility for establishing auditing standards for both public and private companies (Arens, Elder, & Beasley, 2010). Existing auditing standards were adopted by the PCAOB as interim auditing standards for public company audits (Arens, Elder, & Beasley, 2010).

Internal auditing is an independent objective assurance and consulting acitivity designed to add value and improve an organizations operations.