Which of the following sets the standards for audits in the United States?

International Standards for the Professional Practice of Internal Auditing

Standards are principle-focused and provide a framework for performing and promoting internal auditing. The Standards are mandatory requirements consisting of:

• Statements of basic requirements for the professional practice of internal auditing and for evaluating the effectiveness of its performance. The requirements are internationally applicable at organizational and individual levels.
• Interpretations, which clarify terms or concepts within the statements.
• Glossary terms.

It is necessary to consider both the statements and their interpretations to understand and apply the Standards correctly. The Standards employ terms that have been given specific meanings as noted in the Glossary, which is also part of the Standards.

Trust, consistency, reliability and confidence are among the most valuable features of accounting professionals’ work, and they would be impossible to achieve without professional standards.

Standards are the principles and rules that govern accountants’ practices and procedures and undergird the integrity and comparability of the work done by these professionals.

Imagine, for example, that you were comparing the audited financial statements of Company A and Company B to decide in which organization you want to invest. A useful comparison is possible only if those financial statements were prepared according to the same rules and the companies’ auditors followed similar standards in their engagements. Standards for accounting and auditing enable this uniformity and give investors confidence that their comparison of companies is based on a similar foundation.

Members of the accounting profession in public practice and in business operate under requirements laid out in a large number of standards; some are highlighted here. In addition to accounting and auditing, standards govern professional conduct and ethical responsibilities. And standards are incredibly detailed, covering issues as specific as, for example, what a CPA should consider when offered gifts or entertainment by an organization they audit. An ethics interpretation on gifts and entertainment in the AICPA Code of Professional Conduct provides considerations and safeguards that are designed to preserve CPAs’ integrity and objectivity, and they show the public that CPAs can be trusted in their many roles.

Following professional standards enables accounting professionals to act with integrity, objectivity and due professional care in a manner consistent with that of their colleagues, all of whom undergo years of initial and continuing education as well as significant on-the-job experience.

Public interest served by independent standard setting

The concept of independent standard setting is a foundational value for the practice of accounting whether in public practice or in business. Professional standards serve the public interest best when they are set by professionals who are free from political considerations or self-interest.

Thus, the financial reporting/accounting standards used in the United States are set by the Financial Accounting Standards Board (FASB), whose members are appointed by the not-for-profit Financial Accounting Foundation. Standards for many jurisdictions across the world are set by the International Accounting Standards Board, whose members are chosen by the International Financial Reporting Standards Foundation.

Boards staffed by volunteer American Institute of CPAs (AICPA) members set standards that govern numerous services provided by CPAs as well as professional ethics standards. Included among them is the AICPA Auditing Standards Board (ASB), which sets standards for audits of nonpublic entities - private companies, governments, not for profit entities, and employee benefit plans. The ASB’s members include representatives from accounting firms of various sizes, state accounting boards, academics, and others.

U.S. public company auditing standards, meanwhile, are set by the Public Company Accounting Oversight Board (PCAOB), whose members are appointed by the government’s securities regulator, the Securities and Exchange Commission (SEC).

Through public meetings and public consultations and exposure drafts, standard setters generally conduct their work with transparency and welcome input from various stakeholders. In general, standard setters consult with interested parties to evaluate circumstances in which change may be necessary to adjust to conditions or improve practices.

When a change or a new standard is deemed necessary, standard setters generally draft a proposal and ask for public comment on the proposal. After considering the feedback they receive, the standard setters may create and issue a final standard that includes information such as when the new rules will take effect.

Standards evolve with the environment

The accounting profession faces a number of challenges, one of which is a business environment that is constantly changing. Advancements in technology, for example, give professionals an opportunity to perform their services in new, more efficient ways. But these advancements also can present challenges that weren’t anticipated by the standards.

Take information systems including the use of the cloud, for instance. In recent years, companies have implemented new ways of aggregating and storing their financial information and have turned to accounting professionals to help them do so, as this is an area where many accounting professionals possess expertise. If a CPA sets up and maintains a cloud service for an organization, the CPA is performing management duties that impair the CPA’s independence. As a result the CPA could not perform any services that require independence for that organization.

The AICPA Professional Ethics Executive Committee (PEEC) provides standards and guidance that makes this clear. For example, they created the “Hosting Services” and “Information System Services” interpretations that were added to the AICPA Code of Professional Conduct to help CPAs understand what kind of assistance they can provide to organizations related to these services without jeopardizing their independence.

Change can lead to improvement

In addition to enabling provision of better information or services to the public, standards changes can bring about improvements in the operations of businesses and firms. For example, a recently issued FASB standard required companies that lease assets to report those leases on their balance sheets.

This provided more transparency to financial statement users, and the processes that companies used to perform the new accounting provided new opportunities. The new processes required them to gather all their lease contracts for property, vehicles, office equipment and other items in one place rather than having them spread throughout the organization.

This helped companies take a more complete look at their leases as a whole and find opportunities for improvements such as consolidation under one vendor that could offer better rates because of the higher volume.

Changes such as this can make the process of implementing standards, which is time-consuming, more advantageous to the business as well as the public.

Meanwhile, standard setters also take into account how difficult a standard will be to implement when they set the effective date, providing more time for standards that are particularly challenging. Private companies, which often have fewer resources than public companies, often are given more time for implementation.

Ultimately, the whole process is designed to help CPAs do the best job possible as they provide investors, creditors and the public with information that’s consistent, comparable and reliable. As a result, standard setters serve the public interest and therefore support a pillar of the CPA profession.

Accounting and auditing standard setters and the related standards include the following:

Standard setterAbbreviationStandardsAICPA Auditing Standards BoardASBU.S. private company generally accepted auditing standards (GAAS), quality control standards and attestation standardsAICPA Accounting and Review Services CommitteeARSCStandards for Accounting and Review ServicesAICPA Tax Executive Committee--Standards for Tax ServicesAICPA Professional Ethics Executive CommitteePEECAICPA professional ethics standardsFinancial Accounting Standards BoardFASBU.S. generally accepted accounting principles (GAAP)Governmental Accounting Standards BoardGASBU.S. state and local government accounting standardsFederal Accounting Standards Advisory BoardFASABU.S. federal government accounting standardsPublic Company Accounting Oversight BoardPCAOBU.S. public company auditing standards, attestation, ethics and independence, and quality control standards.Comptroller General/Governmental Accountability Office--/GAOGenerally accepted government auditing standards (GAGAS)International Auditing and Assurance Standards BoardIAASBInternational auditing and assurance standardsInternational Ethics Standards Board for AccountantsIESBAInternational professional ethics standardsInternational Public Sector Accounting Standards BoardIPSASBInternational governmental accounting standardsInternational Sustainability Standards BoardISSBInternational sustainability reporting standardsAICPA Consulting Services Executive Committee--Valuation services standardsAICPA Personal Financial Planning Executive Committee--Personal financial planning services standards

Who sets auditing standards in the US?

What auditing standards are used in USA?

Which are the following standard is used for audit?

Does the PCAOB established auditing standards?