Audit Report

CHAPTER 2

Professional Standards

Review Questions

2-1 The Sarbanes-Oxley Act of 2002 created the PCAOB and gave this body authority to develop auditing standards for the audits of public companies. The AICPA has the authority, based on general acceptance (and adoption by state boards of accountancy and other regulatory bodies), to develop auditing standards for audits of nonpublic companies.

2-2 Generally accepted accounting principles are accounting principles which have substantial authoritative support, such as approval by the Governmental Accounting Standards Board or the Financial Accounting Standards Board, or its predecessor, the Accounting Principles Board. These standards provide the criteria for financial reporting, including the nature and content of financial statements.

Generally accepted auditing standards (GAAS) refer to the 10 broad standards and the Statement on Auditing Standards (SASs) set forth by the Auditing Standards Board of the AICPA. Generally accepted auditing standards vary depending upon whether the audit is of a public or nonpublic company. Auditing standards for public companies are established by the Public Company Accounting Oversight Board.

Examples of generally accepted accounting principles are the matching principle, the realization principle, and the going concern assumption. There are a number of others, but no official list exists. Examples of generally accepted auditing standards (within the general standards subgroup) would include:

1) The audit must be performed by a person or persons having adequate technical training and proficiency as an auditor.

2) In all matters relating to the engagement, an independence in mental attitude is to be maintained by the auditor or auditors.

3) Due professional care is to be exercised in the performance of the audit and the preparation of the report.

2-3 The usual avenues for an individual to meet the requirement of...