Regulators have added to audit rules in response to the high-profile corporate frauds that took place in the early 2000s and the economic downturn that began in earnest during 2008, but new rules seem to only have led to new ways for corporate managers to mislead users of financial statements. This highlights the importance of the auditor’s role. As of publication, U.S. accounting standards are trending toward conversion with international standards, but for domestic companies, generally accepted accounting principles dictate auditing standards.


For American companies, auditing standards are set by the Financial Accounting Standards Board. FASB was designated in 1973 as the organization in charge of setting accounting standards used for preparing the financial statements of corporate entities. GAAP standards are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. The SEC obtained its authoritative status over publicly traded companies via the Securities Exchange Act of 1934. FASB’s Private Company Council advocates for private companies internally.

General Standards

There is a substantial amount of overlay regarding the principles and language used by the AICPA and the Public Company Accounting Standards Board. Both have adopted 10 GAAP standards regarding audits, including three general standards. First, the auditor preparing an audit must be adequately trained and proficient. Second, the auditor must be independent in mind and professional affiliation from the entity being audited. And third is that “due professional care” is to be exercised in the preparation of the audit report.

Standards Of Field Work


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Again, the authoritative accounting entities all endorse three standards of field work that are essentially identical. First, audit projects must be adequately planned, and junior-level auditors and assistants must be properly supervised. Second, auditors must fully understand the client company’s internal control standards to plan the audit and the timing, nature and extent of tests that must be performed. Finally, auditors must obtain adequate evidence regarding the reliability of the client company’s financial statements. Evidence is to be gathered via inspections, observations, inquiries and confirmation. It is interesting to note that the third standard especially supports the notion of the ever-increasing complexity of audits. However, private companies, in particular, have expressed concern over the complexity of audit rules and the associated fees. This was what prompted FASB to create the Private Company Council in 2013.

Standards Of Reporting

Four standards of reporting apply. The auditor must state in the audit report whether or not the financial statements are GAAP compliant. Also, the auditor must explicitly state any departures from GAAP in the audit report. The auditor must also state when a client company has changed its accounting standards relative to the prior year. Finally, the auditor must express an opinion as to the reliability of the financial statements as a whole, or state that the auditor cannot express an unmodified opinion. If the auditor identifies departures from GAAP, the auditor can issue a qualified report with a disclaimer regarding the opinion issued. It should be noted that the SEC actually allows for non-GAAP-compliant disclosures as long as a reconciliation to GAAP standards is also provided.