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GAAS: Due Professional Care

The ten Generally Accepted Auditing Standards (GAAS) provide the foundation for all other auditing standards and interpretations.

What is the definition of the standard of "due professional care", and how might a court decide whether an audit firm met the standard?

Why is independence often considered the cornerstone of the auditing profession? Why were independence issues a primary concern of Congress when they developed the Sarbanes-Oxley Act?

Solution Preview

According to Beasley, et.al., the GAAS standard of 'due professional care' entails that the auditor has to consistently observe the standards of fieldwork and reporting in order to show that he has complied with this standard. Only when the auditor possesses the adequate training and experience and a mental attitude that is independent can the auditor achieve these fieldwork and reporting standards. 'Due professional care' synthesizes the entire audit process. The auditor gathers and collects all the facts during the audit engagement and he uses his experience and professional judgment so that a fair and honest judgment on the financial statements can be concluded. This standard has two aspects: professional skepticism and reasonable assurance. Skepticism consists of a questioning mind-set of the possibility of fraud; a critical evaluation of the evidence of how it is obtained; and not to allow management's integrity to make him accept evidence that is not persuasive. Reasonable assurance is a high level of assurance in which the auditor is expected to plan and perform the audit for the purpose of gathering sufficient and appropriate evidence to limit the audit risk. In effect, the auditor must obtain reasonable assurance of the financial statements' freedom from material misstatement. (Beasley, et. al., 2008)

A research study in China of Chinese certified public accountants focused on these CPAs to examine and recognize the importance of exercising due ...

Solution Summary

The solution defines 'due professional care' foundation of GAAS and it also discusses the independence in the auditing profession. References are included.

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