Understanding the Hierarchy of Generally Accepted Auditing Standards (GAAS)

Posted In | Finance | Accounting Software

Generally Accepted Auditing Standards (GAAS) are a set of guidelines that auditors must follow while conducting audits of a company's financial statements. These standards provide a framework for ensuring that audits are carried out with consistency, competence, and in a manner that promotes transparency and reliability. The GAAS hierarchy is crucial for understanding the different levels of guidance that auditors must adhere to when performing their duties.

 

The Hierarchy of GAAS

The GAAS hierarchy is divided into three categories, each with a different level of authority. These categories are:

1. Category A: Authoritative GAAS Guidance
2. Category B: Interpretive Publications and Other Auditing Guidance
3. Category C: Other Auditing Publications
    

Category A: Authoritative GAAS Guidance

Category A includes the most authoritative guidance that must be followed by auditors. This category consists of Statements on Auditing Standards (SAS) issued by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA). Auditors are required to follow these standards when conducting audits of nonpublic companies in the United States. The International Standards on Auditing (ISA), issued by the International Auditing and Assurance Standards Board (IAASB), also fall into Category A and must be followed by auditors when conducting audits of companies outside the United States.
 

Category B: Interpretive Publications and Other Auditing Guidance

Category B includes guidance that helps auditors understand and apply the standards in Category A. While not as authoritative as Category A, the guidance in Category B should be given substantial consideration by auditors. This category includes documents such as:
 

• Interpretations of SAS and ISA
• AICPA Audit and Accounting Guides
• AICPA Statements of Position (SOP) related to auditing matters
• Practice alerts and bulletins issued by the AICPA and IAASB
   

Auditors should consider this guidance when planning and performing their audits, as it provides valuable insights into applying the standards in various situations.
 

Category C: Other Auditing Publications

Category C includes publications that are not considered authoritative but may provide helpful information and guidance for auditors. These publications are not required to be followed by auditors; however, they can be used as a resource to better understand the auditing process and the application of GAAS. Examples of Category C publications include:
 

• Articles and books related to auditing
• Continuing professional education (CPE) materials
• Industry-specific auditing guidance
• Internal materials and training documents used by audit firms

 

Understanding the hierarchy of GAAS is essential for auditors as they carry out their responsibilities. By adhering to the guidance provided in each category, auditors can ensure they conduct their audits with the highest level of competence, consistency, and transparency. This, in turn, promotes trust and confidence in the financial reporting process and the integrity of financial statements.