Generally Accepted Auditing Standards (GAAS) and Agreed-Upon Procedures Engagements

Posted In | Finance | Accounting Software

In the field of auditing, there are both professional standards and best practices that guide auditors in conducting high-quality, objective audits. Two of these essential components are the Generally Accepted Auditing Standards (GAAS) and Agreed-Upon Procedures (AUP) engagements. This article aims to provide an overview of both GAAS and AUP engagements, highlighting their significance in the auditing field and outlining how they work in practice.

 

 

Generally Accepted Auditing Standards (GAAS)

GAAS are a set of systematic guidelines used by auditors when conducting financial statement audits. These standards help ensure the accuracy, consistency, and verifiability of the auditors' work, ultimately leading to increased confidence in the financial reporting process. GAAS are organized into three categories: general standards, standards of fieldwork, and standards of reporting.

 

1. General Standards

• Technical Competence: The auditor must have adequate technical training and proficiency to perform the audit.
   
• Independence: The auditor must maintain an independent mindset and avoid any conflicts of interest that may compromise the audit's objectivity.
   
• Professional Care: The auditor must exercise due professional care in the planning and execution of the audit and the preparation of the audit report.

 

2. Standards of Fieldwork

• Planning and Supervision: The auditor must adequately plan the audit and supervise any assistants involved in the audit.
   
• Internal Control: The auditor must obtain a sufficient understanding of the entity's internal control structure to plan the audit effectively.
   
• Audit Evidence: The auditor must obtain sufficient, appropriate audit evidence to form a basis for their audit opinion.

 

3. Standards of Reporting

• Financial Statements: The auditor must determine whether the financial statements are prepared in accordance with the applicable financial reporting framework.
   
• Consistency: The auditor must determine whether the accounting principles used in the financial statements are consistently applied.
   
• Disclosure: The auditor must determine whether the financial statements contain all necessary disclosures.
   
• Audit Opinion: The auditor must express their opinion on the financial statements, either unmodified (clean) or modified (with reservations or adverse).

 

Agreed-Upon Procedures (AUP) Engagements

In contrast to GAAS, AUP engagements involve the auditor performing specific procedures agreed upon by the client and other relevant parties. The auditor then reports on the findings of those procedures without providing an overall audit opinion. AUP engagements are typically more limited in scope than a full audit and are useful when the client requires assurance on a specific aspect of their financial reporting.

 

Characteristics of AUP Engagements

• Specificity: AUP engagements involve performing specific procedures on specific subject matter, as agreed upon by the client and other relevant parties.
   
• Independence: The auditor must be independent and objective in conducting the AUP engagement.
   
• No Audit Opinion: The auditor does not provide an overall audit opinion on the financial statements in an AUP engagement.
   
• Responsibility: The client and other relevant parties are responsible for determining the adequacy of the agreed-upon procedures for their purposes.

 

Both Generally Accepted Auditing Standards (GAAS) and Agreed-Upon Procedures (AUP) engagements play crucial roles in the auditing field. While GAAS provide a comprehensive framework for conducting financial statement audits, AUP engagements cater to specific assurance needs. By adhering to these standards and best practices, auditors can deliver high-quality, objective audit services that foster trust and confidence in the financial reporting process.