Generally Accepted Auditing Standards (GAAS) are the rules by which a Certified Public Account (CPA) must conduct himself while performing an audit of a company or government entity's financial statements. The American Institute of Certified Public Accountants established these guidelines in 1947. The reports generated during this process follow Generally Accepted Accounting Practices (GAAP).
In general, the standards require that the audit be done by a CPA who has the appropriate education and training (usually requiring a Master's Degree in Accounting, internships and state certification). The auditor is under obligation to remain independent of the entity being audited and must conduct himself with professionalism while compiling the information and creating the reports. It is expected that the auditor will compile and review all financial information to ensure that there has been no misrepresentation either unintentionally or in an attempt to commit fraud. There must be enough auditing evidence to support the documentation and to give a reasonable basis for the auditor's opinion of the financial standing of the company.
Each report generated by the CPA should contain a statement declaring if he compiled the information or if he is merely reviewing what has been given to him. The statement should also include if the information gathered and reported is in compliance with GAAP.
GAAS serves as a financial tool whereby the individual, company or government agencies gather and create accurate reports for preparing tax forms, applying for business loans, bonding insurance, reporting to the board of directors or the general public. On the individual level, this process is simplified unless the person has a considerable amount of varied assets. For business owners having semi-annual compilation or reviewed statements enables them to prove to banks and insurance companies that they are financially viable. Government agencies are required by law to use this standard auditing practice to show the public how tax dollars are being utilized.
When having financial statements compiled for a reviewed statement for the purposes of applying for a loan, bonding insurance or other insurance, it is recommended that a company use an outside CPA because an internal accountant may lack the objectivity and independence required to comply with GAAS.
GAAS serves as a means by which we can be protected from fraud by promoting accuracy in financial statements. These guidelines when adhered to give businesses, banks, government agencies and individuals the ability to make sound decisions.