Auditing involves examining and verifying financial reports to ensure that specific principles are followed. Auditing standards are set by government agencies and financial boards, with different countries having their own set of rules. The Fair Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are two popular groups issuing accounting standards. The FASB is the standard-setting board for US Generally Acceptable Accounting Principles (GAAP), while the IASB’s set of guidelines is entitled International Financial Reporting Standards (IFRS). The FASB and IASB have been working to converge US GAAP and IFRS into a standard set of rules that can be used by companies around the world.
In a basic sense, auditing can be defined as the examination and verification of financial reports. Auditors ensure that specific principles are followed. The auditing standards that accounting professionals follow are set by government agencies and financial boards around the world. Some countries may have similar standards, but no two sets are exactly the same. There are many reasons for this. One is that different countries view and practice accounting and financial reporting in very different ways. In most cases, a country’s accounting practices revolve around the needs of its government. No two countries are run exactly the same, so each country has a special set of rules.
Two of the most popular groups issuing accounting standards today are the Fair Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The FASB is the standard-setting board for US Generally Acceptable Accounting Principles (GAAP). Most developed countries have a set of GAAP, and within these rules and guidelines are auditing standards. The IASB’s set of guidelines is entitled International Financial Reporting Standards (IFRS).
In addition to the basic auditing standards that can be found within a country’s GAAP, two groups have published more specific standards. The American Institute of Certified Public Accountants (AICPA) created a ten-point guide to Generally Accepted Auditing Standards (GAAS). This framework includes sections for general standards, fieldwork standards, and reporting standards. The International Federation of Accountants (IFAC) hosts a group called the International Auditing and Assurance Standards Board (IAASB) that has developed its own International Auditing Standards (ISAs). You can view a list of these standards on the IFAC website.
Taken together, these groups may seem like a lot to keep up with. In reality, there are many more groups that issue auditing standards, and it is difficult to know each and every one of the rules. It is important for international investors to know what kind of standards each country has. Many global trade advocates feel that the sheer volume of auditing standards prevents potential investors from entering the global marketplace. Many of the government agencies and finance boards agree and have begun a convergence of their accounting and auditing standards.
The FASB and IASB have been working to converge US GAAP and IFRS into a standard set of rules that can be used by companies around the world. The end result of this convergence is that a company with international business prepares two sets of financial reports: one according to the convergent guidelines and one according to the GAAP of its home country. The audit is handled in the same way with each set of financial statements audited using the standards of the specific group for which it was prepared.
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