What are Auditing Standards?
Auditing Standards are a set of systematic guidelines used by auditors when conducting audits on a company’s financial records. It helps to ensure the accuracy, consistency, and verifiability of auditors’ actions and reports.
In some countries, International Standards on Auditing (ISA) are used by the auditors while in the rest of the countries indigenous auditing standards are used. United Kingdom has adopted ISAs while in the USA, auditors are required to perform audits in accordance with Generally Accepted Auditing Standards (GAAS).
Generally Accepted Auditing Standards
Who Issues GAAS?
The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) created GAAS
What Are the Requirements of GAAS?
GAAS comprises a list of 10 standards, divided into the following three sections:
- The auditor must have adequate technical training and proficiency to perform the audit.
- The auditor must maintain independence in mental attitude in all matters relating to the audit.
- The auditor must exercise due professional care in the performance of the audit and the preparation of the auditor’s report.
Standards of Field Work
- The auditor must adequately plan the work and must properly supervise any assistants.
- The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control
- The auditor must obtain sufficient appropriate audit evidence by performing audit procedures
Standards of Reporting
- The auditor must state in its report whether the financial statements are presented in accordance with generally accepted accounting principles.
- The auditor must identify in the auditor’s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
- If the auditor determines that informative disclosures in the financial statements are not reasonably adequate, the auditor must so state in the auditor’s report.
- The auditor’s report must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed. When the auditor cannot express an overall opinion, the auditor should state the reasons in the auditor’s report.
International Auditing Standards
Who Issues ISAs?
These standards are issued by the International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB).
What is Scope ISAs?
The standards cover various areas of auditing, including
- Respective responsibilities
- Audit planning
- Internal control
- Audit evidence
- Using the work of other experts
- Audit conclusions
- Audit reports
- Standards for specialized areas.
How ISAs Are Structured?
Every ISA is structured in individual sections as:
Introductory material can include the purpose, scope, and subject matter of the ISA, as well as the responsibilities of the auditor and others in context in which the ISA is established.
Every ISA consists of as clear statement about the objective of the auditor in the audit area addressed by that ISA.
For a higher understanding of the ISAs, pertinent terms are delineated in each ISA.
Every objective is shored up by clearly stated requirements. Requirements are always expressed by the phrase “the auditor shall.”
- Application and other explanatory material
The application and other explanatory material explains more exactly what is meant by a requirement or is intended to cover, or includes examples of procedures that can be appropriate under certain circumstances
What Are the Objectives of ISAs?
The ISA objectives are two-fold:
- Analyzing the comparability of national accounting as well as auditing standards with international standards, determine the degree to which applicable auditing and accounting standards comply, and analyze strengths and weaknesses of the institutional framework in sustaining high-quality financial reporting.
- Assist the country in developing and implementing a country action plan for improvement of institutional capacity with a view of strengthening the corporate financial reporting system of the country.
List of ISAs
- ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing
- ISA 210, Agreeing the Terms of Audit Engagements
- ISA 220, Quality Control for an Audit of Financial Statements
- ISA 230, Audit Documentation
- ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
- ISA 250, Consideration of Laws and Regulations in an Audit of Financial Statements
- ISA 260, Communication with Those Charged with Governance
- ISA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
- ISA 300, Planning an Audit of Financial Statements
- ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
- ISA 320, Materiality in Planning and Performing an Audit
- ISA 330, The Auditor’s Responses to Assessed Risks
- ISA 402, Audit Considerations Relating to an Entity Using a Service Organization
- ISA 450, Evaluation of Misstatements Identified during the Audit
- ISA 500, Audit Evidence
- ISA 501, Audit Evidence-Specific Considerations for Selected Items
- ISA 505, External Confirmations
- ISA 510, Initial Audit Engagements-Opening Balances
- ISA 520, Analytical Procedures
- ISA 530, Audit Sampling
- ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
- ISA 550, Related Parties
- ISA 560, Subsequent Events
- ISA 570, Going Concerned
- ISA 580, Written Representations
- ISA 600, Special Considerations-Audits of Group Financial Statements (Including the Work of Component Auditors)
- ISA 610, Using the Work of Internal Auditors
- ISA 620, Using the Work of an Auditor’s Expert
- ISA 700, Forming an Opinion and Reporting on Financial Statements
- ISA 705, Modifications to the Opinion in the Independent Auditor’s Report
- ISA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
- ISA 710, Comparative Information-Corresponding Figures and Comparative Financial Statements
- ISA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements
- ISA 800, Special Considerations-Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks
- ISA 805, Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement
- ISA 810, Engagements to Report on Summary Financial Statements
- International Standard on Quality Control (ISQC) 1, Quality Controls for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.