GENERALLY ACCEPTED
AUDITING STANDARDS







Prepared for
Jim Nutty











by
Rob Lewis
April 10, 1996
 Generally Accepted Auditing Standards are those guidelines which auditors must adhere to
 while conducting an audit of a company's or government entity's financial statements.  It
 must also be stated in the audit report that the audit was conducted following Generally
 Accepted Auditing Standards.  This has been required since 1941 after the investigation of
 a large drug company, McKesson & Robbins, Inc., which had had funds embezzled by its
 president and his three brothers.  Neither the internal controls or the independent
 auditors detected the embezzlement. Generally Accepted Auditing Standards are divided into
 three main areas: 1)  General Standards, 2) Standards of Fieldwork, and 3) Standards of
 Reporting.  Each area contains three or four specific standards.  
General Standards
 There are three general standards.  They deal with technical training and proficiency,
 independence, and due professional care.  To have technical training and proficiency means
 you have the proper educational background.  This is demonstrated by passing a
 comprehensive examination.  Independence is the most important attribute of an auditor.  An
 auditor must remain independent of the client at all times and avoid all situations that
 may jeopardize his independence.  Due professional care means working carefully and being
 willing to take responsibility for the accuracy of your work.
Standards of Field Work
 There are three standards of field work.  They address proper planning and supervision,
 examination and evaluation of internal controls, and collecting sufficient and competent
 evidence.  An auditor must adequately plan his audit in advance and be familiar with the
 business and industry of his client.  He should test the internal control system of the
 client, especially those controls on which he plans to rely during the audit.  He should
 obtain the most reliable evidence available and select the best procedures to obtain that
 evidence.    
Standards of Reporting
 There are four standards of reporting.  They are concerned with whether the financial
 statements are presented in accordance with Generally Accepted Accounting Principals
 (GAAP), consistency, informative disclosures, and an expression of opinion on the financial
 statements that have been audited.  The audit report must explicitly state whether  the
 financial statements have been prepared in conformity with GAAP and whether or not these
 principles have been applied consistently from one year to the next.  Unless stated
 otherwise, it should be assumed that the informative disclosures stated in the financial
 statements are adequate.  Any deficiencies in this area should be specifically stated in
 the audit report.  Footnotes must contain all the relevant information needed to be able to
 properly interpret the financial statements.  Finally, the auditor must express an opinion
 on the financial statements.  The auditor should issue either an unqualified, qualified,
 adverse, or disclaimer of opinion.  The basic format for each of these opinions is pretty
 much pre-established.  In a qualified or adverse opinion, an additional paragraph should be
 added for each problem found within the financial statements.  A disclaimer of opinion
 should be issued any time an auditors independence  is violated or if he is unable to
 complete the entire audit for some reason.
Conclusion
 Each of the standards carry equal weight and should be followed while conducting any audit
 whether it is a private business or a governmental entity.  Depending on the specific
 audit, there may be other standards which also apply.

SOURCES
Biar, B., and Grinaker, R. (1965).  Auditing: The Examination of Financial Statements.     
	Homewood:  Richard D. Irwin, Inc. Carmichael, D., Lilien, S., & Mellman, M. (1991). 
Accountants Handbook (7th Edition).  New 	York: John Wiley & Sons. Robertson, J.(1996). 
Auditing (8th Edition).  Chicago: Irwin.

