Auditing standards are set by government agencies and financial councils worldwide, with no two sets being exactly alike due to different accounting practices and government needs. The FASB and IASB issue popular accounting standards, while the AICPA and IFAC have more specific guidelines. The sheer volume of review standards can deter potential investors, leading to a convergence of accounting and auditing standards. The FASB and IASB are working to converge US GAAP and IFRS into a standard set of rules for companies worldwide.
In a sense, audit can be defined as the examination and verification of financial reports. Auditors ensure that specific principles are followed. The auditing standards followed by accountancy professionals are set by government agencies and financial councils around the world. Some countries may have similar standards, but no two sets are exactly alike. 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 it follows that 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 United States Generally Acceptable Accounting Principles (GAAP). Most developed countries have a set of GAAP and within these rules and guidelines are the standards of control. The IASB’s set of guidelines is titled International Financial Reporting Standards (IFRS).
In addition to the basic auditing standards that can be found within a country’s GAAP, two groups have released more specific standards. The American Institute of Certified Public Accountants (AICPA) has created a ten-point guideline for 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) which has developed its own International Standards on Auditing (ISA). A list of these standards can be viewed on the IFAC website.
Overall, these groups can seem like a lot to keep up with. In reality, there are many more groups issuing inspection standards and it is difficult to fully know every single rule. It is important for international investors to know what kind of standard each country has. Many advocates of global trade believe that the sheer volume of review standards makes potential investors shy away from entering the global market. Many of the government agencies and financial councils 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 net result of this convergence is that a company with international reports prepares two sets of financial reports: one under the converging guidelines and one under its home country GAAP. Auditing is handled in much the same way with each set of audited financial statements using the standards of the specific group for which it was prepared.
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