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2.1.WHAT IS AUDITING STANDARDS?

qAuditing standards are general guidelines to aid

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auditors in fulfilling their professional responsibilities
in the audit of historical FSs.
PROFESSIONAL
qThey include consideration of professional qualities
AUDITING STANDARDS such as competence (know how)&independence,

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reporting requirements, and evidence. 2

2.2. GENERALLY ACCEPTED AUDITING STANDARDS Cont’d….

Generally Accepted Auditing Standards
qThe broadest guidelines available to auditors are 1. General
2. Field Work 3. Reporting
performance of the results
the 10 generally accepted auditing standards qualifications audit
and conduct 1. Whether statements
(GAAS), which were developed by the AICPA. were prepared in
1. Adequate & Proper planning accordance with GAAP
q10 (ten) generally accepted auditing standards fall 1. Adequate
and supervision
technical 2. Circumstances when
into three categories: training and 2. Sufficient understanding GAAP not consistently
proficiency of the entity, its followed
1. General standards 2. Independence in environment, and its
3.Adequacy of
internal control
2. Standards of field work mental attitude
3. Sufficient competent
informative disclosures
3. Due professional 4. Expression of
3. Reporting standards care evidence
opinion on financial
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2.2.1. General Standards qDue care : means that auditors are professionals responsible for
1. Adequate technical training & proficiency. fulfilling their duties diligently and carefully.

qDue care includes consideration of the completeness of the audit

2. The auditor must maintain independence in
documentation, the sufficiency of the audit evidence, and the
mental attitude in all matters relating to the audit.
appropriateness of the audit report.
3. The auditor must exercise due professional care in qAs professionals, auditors must not act negligently/carelessly
the performance of the audit and the preparation of or in bad faith, but they are not expected to be infallible (fail
the report. safe).
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2.2.2. Standards of Field Work 3. The auditor must obtain sufficient

1. The auditor must adequately plan the work and must properly
appropriate audit evidence by performing
supervise any assistants.
audit procedures to afford a reasonable basis
2. The auditor must obtain a sufficient understanding of the entity

and its environment, including its internal control, to assess the for an opinion regarding the financial
risk of material misstatement of the financial statements whether due statements under audit.
to error or fraud, and to design the nature, timing, and extent of

further audit procedures. 7 8

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2.2.3. Standards of Reporting 3. W h e n t h e a u d i t o r d e t e r m i n e s t h a t i n f o r m a t i v e

The auditor must state in the auditor’s report: disclosures are not reasonably adequate, the auditor
1. Whether the financial statements are presented in must so state in the auditor’s report.
accordance with generally accepted accounting 4. The auditor must either express an opinion regarding
principles (GAAP) the financial statements, taken as a whole, or state that
2. The audit report must state whether the GAAP has an opinion cannot be expressed, in the auditor’s report.
been consistently applied with that of the preceding
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period.

q When the auditor cannot express an overall opinion, 2.3. ERROR AND FRAUD
the auditor should state the reasons in the auditor’s qAuditor Responsibilities with Respect to Financial Statements

report. q Expression of an opinion

qIn all cases where an auditor’s name is associated with qReasonable assurance (word/ declaration) that material
misstatements are absent:
financial statements, the auditor should clearly indicate
the character of the auditor’s work, if any, and the qIncludes errors (faults/mistakes), fraud/fake and other

degree of responsibility the auditor is taking, in the irregularities

auditor’s report. qPlan and perform the audit in accordance with GAAS
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Types of Misstatements:
Some are Difficult to Detect!
qError: unintentional/chance misstatement
qFraud and other irregularities: intentional
qTheft of assets, often employee fraud
qFraudulent financial reporting, often management fraud
qComputer fraud and so on….
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PROFESSIONAL ETHICS
• All recognized professions have developed codes of professional
ethics. Professional ethics refer to the basic principles of right
action for the member of a profession.
• Professional ethics may be regarded as a mixture of moral and
practical concepts.
• Thus the professional ethics of an accountant would signify his
behavior towards his fellows in the profession and other
professions and towards members of the public.
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PROFESSIONAL QUALIFICATION REQUIREMENTS
• A professional accountant should perform professional services
with due care, competence and diligence and has a continuing
duty to maintain professional knowledge and skill at a level
required to ensure that a client or employer receives the
advantage of competent professional service based on up-to-
date development in practice, legislation and techniques.
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- Integrity: - An accountant should be straightforward, honest
and sincere in his approach to his professional work.
- Objectivity: - An accountant should be fair and should not
allow bias to override his objectivity.
- Independence: - When in public practice, an accountant should
both be and appear to be free of any interest which might be
regarded, whatever its actual effect, as being incompatible with
integrity and objectivity.
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- Ethical behavior: - An accountant should conduct himself with a good

- Confidentiality: - A professional accountant should respect the confidentiality
reputation of the profession and refrain from any conduct, which might bring
of information acquired in the course of his work and should not disclose any
discredit to the profession.
such information to a third party without specific authority or unless there is a
- Contingent fess: - The AICPA code of professional conduct prohibits a CPA firm
legal or professional duty to disclose.
from rendering any professional services on a contingent fee basis.
- Technical standards: - An accountant should carry out his professional work
- Responsibilities to colleagues: - The auditor should promote cooperation and
in accordance with the technical and professional standards relevant to that
good relations with other members of the profession.
work.
- Advertising: - The advertising should not be false or misleading,” should not
- Professional competence: - An accountant has a duty to maintain his level of
contravene “professional good taste,” should not make “unfavorable reflection on
competence throughout his professional career. He should only undertake
the competence or integrity of the profession,” and should not” involve a
works, which he or his firm can expect to complete with professional
statement the contents of which” cannot be substantiated.
competence.
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Liable for what?

LEGAL RESPONSIBILITY AND LIABILITY OF
AUDITORS
• The auditor is responsible for his report. The auditor then has
certain duties to fulfill to the users of the financial statements
that he reports on.
• Responsibilities impose liabilities if things go wrong.
• The CPA can be sued under the following legal concepts.
(i)Prudent man concept: - The auditor is responsible for exercising due
professional care, and he is subject to lawsuit if he fails to do so.
(ii)Liable for acts of others: - The partners are jointly liable for civil
actions against a partner.
(iii)Lack of privileged communication: - CPAs do not have the right under
common law to withhold information from the courts on the grounds that
the information is privileged.

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END OF CHAPTER TWO

THANK YOU VERY MUCH

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