As you look at financial statements audits it is important to gain an understanding of the rules and regulations that govern the profession.
On the other hand the auditor is required to audit a company's financial statements for compliance with a certain set of rules. In the US the rules are set forth by the Financial Accounting Standards Board (FASB). These rules provide specific guidance on how the financial statements should be prepared. For example in the case of accounting for leases, the standards are set forth in FAS (Financial Accounting Standards) Number 13.
There is an international body that also provides rules and regulations for accounting standards known as the IASB (International Accounting Standards Board). It is important to note that both the FASB and the IASB have held joint meetings to try to get the two sets of standards to state the same requirements. However, as of today, there still are differences between the two standards. For example in the case of accruals US GAAP indicates that the accruals are booked at historical cost. However, IAS (International Accounting Standards) requires that accruals are updated every month using a standard interest rate for the country in which the company operates.
In addition, to these two standards there are standards set forth by the US Security Exchange Commission. These standards apply to all (both foreign and domestic) companies that trade their shares on US stock exchanges. One of the biggest changes in the rules set forth by the SEC is the Sarbanes-Oxley Act of 2002.
In addition, it is important to mention that GAAP can be country specific as well. For example, in Mexico there is Mexican GAAP. This differs from both US GAAP and IFRS. So from an audit perspective, the auditor would have to audit the local books from a Mexican GAAP perspective and then audit the books for either a US GAAP or IFRS basis if the companyâ??s results formed a part of the consolidated financial statements of a foreign entity.
So from a practical standpoint an auditor uses GAAS guidance to audit a company's financial statements to ensure that the financial statements presented to the public are fairly stated in accordance with US GAAP (IAS if the company is traded outside of the US or has received an exception by the SEC to use IAS as their main accounting standards) and SEC regulations.
What are the main ideas in the comment above? Should FASB and IASB converge? And if they do, how will this impact auditing standards?
It seems that there are several major idea to consider in the summary posted:
1. Practice of auditing (spelled out in GAAS)
2. Method used to report transactions (determined by the accounting framework adopted)
3. Ownership structure (Public vs. Private)
Each audit will consider GAAS to determine the audit steps and the evidence that will be collected. If the company is public, it is under the SEC's rules and the audit must be integrated. That is, you need to review internal ...
Your response is 294 words and give you an opinion on whether the accounting frameworks should converge and how this impacts audits.