# Generally Accepted Auditing Standards: Definition, GAAS vs. GAAP

## What Are Generally Accepted Auditing Standards (GAAS)?

Generally accepted auditing standards (GAAS) are a set of systematic guidelines used by auditors when conducting audits of companies' financial records. GAAS helps to ensure the accuracy, consistency, and verifiability of auditors' actions and reports. The [Auditing Standards Board (ASB)](https://www.investopedia.com/terms/a/auditing-standards-board-asp.asp) of the [American Institute of Certified Public Accountants (AICPA)](https://www.investopedia.com/terms/a/american-institute-of-certified-public-accountants.asp) created GAAS. Its members agree to adhere to the standards.

### Key Takeaways

*   Generally accepted auditing standards (GAAS) are principles that auditors follow when reviewing a company's financial records.
*   GAAS helps to ensure the accuracy, consistency, and verifiability of an auditors' actions and reports.
*   Generally accepted auditing standards are detailed in three sections labeled General Standards, Standards of Fieldwork, and Standards of Reporting.
*   Generally accepted accounting principles (GAAP) are standards followed by company accountants when recording and reporting financial activities.
*   While GAAP applies to accounting for financial activities, GAAS involves the auditing of that accounting.

![Generally Accepted Auditing Standards (GAAS)](https://www.investopedia.com/thmb/SjjbP9t6wyudzeZv9Dx2SluE4j0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GAAS_Final_4195698-3350b26eda274bb8998e4d53b7f0d940.png)

*— Investopedia / Paige McLaughlin*

## Understanding Generally Accepted Auditing Standards (GAAS)

GAAS are the auditing standards that help measure and ensure the quality of audits. Auditors review and report on the financial records of companies according to the generally accepted auditing standards.

Auditors are tasked with determining whether the financial statements of public companies follow generally accepted accounting principles (GAAP). GAAP is a set of accounting standards that public companies must follow when [reporting their true and accurate financial results](https://www.investopedia.com/articles/financial-analysis/063016/what-are-financial-statement-assertions.asp).

Auditors review a company's financial records and accounting practices to ensure that they're consistent and comply with GAAP. The [Securities and Exchange Commission (SEC)](https://www.investopedia.com/articles/investing/112914/understanding-sec.asp) requires that the financial statements of public companies be examined by external, independent auditors.

> **Important**
>
> While GAAP outlines the accounting standards that accountants must follow, GAAS provides the auditing standards that auditors must follow.

## Requirements for GAAS

Generally accepted auditing standards (GAAS) comprise 10 standards, divided into the following three sections:

### General Standards

1.  The auditor must have adequate technical training and proficiency to perform the audit.
2.  The auditor must maintain independence in mental attitude in all matters relating to the audit.
3.  The auditor must exercise due professional care in the performance of the audit and the preparation of the [auditor's report](https://www.investopedia.com/terms/a/auditorsreport.asp).

### Standards of Field Work

1.  The auditor must adequately plan the work and must properly supervise any assistants.
2.  The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
3.  The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.

### Standards of Reporting

1.  The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles.
2.  The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
3.  If the auditor determines that informative disclosures in the financial statements are not reasonably adequate, the auditor must so state in the auditor's report.
4.  The auditor's report must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed. When the auditor cannot express an overall opinion, the auditor should state the reasons in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report.

## GAAS vs. GAAP

### GAAS

While GAAS refers to the auditing standards that auditors follow to produce a reliable and transparent audit report, GAAP relates to accounting standards that companies follow when recording and reporting financial activities/events.

Auditors use GAAS when reviewing the financial records of companies (that most likely use GAAP) and producing audit reports.

GAAS auditing standards were issued by the American Institute of Certified Public Accountants (AICPA).

### GAAP

The accounting principles enumerated by [GAAP](https://www.investopedia.com/terms/g/gaap.asp) were issued by the [Financial Accounting Standards Board (FASB)](https://www.investopedia.com/terms/f/fasb.asp).

GAAP is intended to ensure consistency among financial records, financial transparency, and protection from fraud or misleading company reports.

Use of GAAP provides investors and creditors with the assurance of a reliable standard of accounting. It simplifies the examining of financials of individual companies as well as comparisons with others.

## What Are the 3 Types of GAAS?

The three sections of generally accepted auditing standards are General Standards, Standards of Field Work, and Standards of Reporting.

## What Is GAAP in Auditing?

GAAP refers to generally accepted accounting principles. These are the accounting standards and rules by which companies record and report their financial activities. These financials are examined subsequently by auditors who can then [attest to their veracity (or report inadequacies)](https://www.investopedia.com/terms/a/attest-function.asp).

## Does an Auditor Have to Follow GAAS?

If an auditor is a member of the American Institute of Certified Public Accountants (whose Accounting Standard Board issues GAAS), the auditor is required to follow GAAS.

## What Happens if an Auditor Doesn't Follow GAAS?

If an auditor fails to adhere to GAAS, they could be held liable for negligence regarding losses suffered by a company.

## The Bottom Line

Generally accepted auditing standards are a set of guidelines that auditors follow when they examine and report on companies' financial records. These guidelines are important because they underscore appropriate actions and activities of auditors.

Generally accepted accounting principles (GAAP) relate to accounting rules. They are different from GAAS. However, auditors review corporate financial records for adherence to GAAP.

> **Article Sources**
>
> 1.  Louisiana Legislative Auditor. "[Auditing Standards and the Difference Between GAAP | GAAS and GAGAS](https://lla.la.gov/resources/local-government-reporting/louisiana-governmental-audit-guide/400-1050-auditing-standards-and-the-difference-between-gaap-gaas-and-gagas)."
>     
> 2.  U.S. Securities and Exchange Commission. "[All About Auditors: What Investors Need to Know](https://www.sec.gov/reportspubs/investor-publications/investorpubsaboutauditorshtm.html)."
>     
> 3.  American Institute of Certified Public Accountants. "[AU Section 150 Generally Accepted Auditing Standards](https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-00150.pdf)."
>     
> 4.  Office of Justice Programs Territories Financial Support Center. "[Generally Accepted Accounting Principles (GAAP) Guide Sheet](https://www.ojp.gov/sites/g/files/xyckuh241/files/media/document/GAAP_Guide_Sheet_508.pdf)." Page 1.