CHAPTER 2
Professional Standards
Review Questions
2-1  The Sarbanes-Oxley Act of 2002 created the PCAOB and gave this body authority to develop auditing
standards for the audits of public companies. The AICPA has the authority, based on general
acceptance (and adoption by state boards of accountancy and other regulatory bodies), to develop
auditing standards for audits of nonpublic companies.
2-2  Generally accepted accounting principles are accounting principles which have substantial
authoritative support, such as approval by the Governmental Accounting Standards Board or the
Financial Accounting Standards Board, or its predecessor, the Accounting Principles Board. These
standards provide the criteria for financial reporting, including the nature and content of financial
statements.
  Generally accepted auditing standards (GAAS) refer to the 10 broad standards and the
Statement on Auditing Standards (SASs) set forth by the Auditing Standards Board of the AICPA.
Generally accepted auditing standards vary depending upon whether the audit is of a public or
nonpublic company. Auditing standards for public companies are established by the Public Company
Accounting Oversight Board.
  Examples of generally accepted accounting principles are the matching principle, the
realization principle, and the going concern assumption. There are a number of others, but no official
list exists. Examples of generally accepted auditing standards (within the general standards subgroup)
would include:
(1) The auditor must have adequate technical training and proficiency to perform the audit.
(2) The auditor must maintain an 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 report.
2-3  The usual avenues for an individual to meet the requirement of "adequate technical training and
proficiency as an auditor" are obtaining a college or university education with major work in
accounting and auditing, experience in public accounting (auditing experience with the GAO or in
internal auditing is a possible alternative), and participation in continuing education programs.