Introduction to Auditing under PCAOB and U.S. GAAS Standards
Introduction to Auditing under PCAOB and U.S. GAAS Standards

Introduction to Auditing under PCAOB and U.S. GAAS Standards

When I first began my career in public accounting, I struggled to make a meaningful connection to the work I was doing. I almost felt like a glorified “double checker” …going back behind someone who had done the real work and making sure it was accurate. Little did I know then that I, and the rest of my audit team, played a far greater purpose by serving as external auditors for our public company clients.

In fact, the purpose of an audit is to provide users of the financial statements (e.g., investors and other stakeholders) with an opinion from the independent auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework (e.g., U.S. GAAP or IFRS). An audit is NOT (as I so wrongly felt) double checking management’s math. In order to form an opinion on whether the financial statements are presented fairly, the auditors must plan and perform an audit that obtains reasonable assurance – that is a high level! – that the financial statements, as a whole, are free of material misstatement due to error or fraud. Not only does this mean testing the mundane and ordinary transactions (hello, cash confirmations!), but also digging into the subjective areas, the judgmental areas, the risky areas, and evaluating management’s processes, inputs, and assumptions, to ensure that each would yield an output that is consistent with the reporting framework being applied (hello, impairment testing, valuations, and allowances!).

How does the audit team accomplish this virtuous (and sometimes seemingly monumental) task? Through a well-planned, well-performed, and well-documented audit! For audits of private entities, this means applying the AICPA’s Auditing Standards Board’s (ASB) Statements on Auditing Standards (SAS). For audits of public companies, this means applying the PCAOB’s Auditing Standards. Whatever guidance you’re applying, at a very high level, these are the different stages of an audit:

  1. Identifying and assessing the risks of material misstatement – This is typically performed through obtaining and documenting a thorough understanding of management’s processes, including its control environment. While we highlight this step as one of the first stages, it is important to remember that risk assessment is iterative and should always be revisited constantly throughout the audit!
  2. Planning the nature, timing, and extent of procedures to be performed: Remember, as risk rises, this should have a direct impact on the nature, timing, and extent of procedures to be performed.
  3. Perform procedures that are responsive to the risks identified: This is where we get the all-important audit evidence that supports our audit opinion! The higher the quality of audit evidence we obtain, the less we will need additional corroborative evidence. Evidence can come from test of controls, test of details, substantive analytical procedures, or a combination of them all.
  4. Evaluate and conclude on the evidence obtained: Did the audit team obtain sufficient appropriate audit evidence to support the opinion? Did the audit conclude on their test work? Is it all retained appropriately in accordance with the applicable auditing standards?

Audit quality has been at the forefront of the financial news landscape of late. The PCAOB (who sets the auditing standards for external auditors of public companies) inspects public company auditors to ensure audits are up-to-snuff. Lately, their findings have shown perhaps we are all a bit rusty on our auditing requirements. In fact, audits with deficiencies rose, for the second year in a row, to 40% in 2022, up from 34% in 2021 and 20% in 2020!

If you’re like me and you could use a reminder of the audit requirements under either AICPA or PCAOB guidance, look no further! We recently released the following collection of 4 courses designed to give you and your team a holistic view of the audit.

You can see the full course collection here. Let’s take a moment to look at each individual course:

Introduction to Audit and the Independent Auditor

Do your friends think you do taxes for a living even though you’re a financial statement auditor? Do you, as a financial statement auditor, understand the purpose of your job and the various requirements that come along with it?

In this CPE eligible (1.0 hour) eLearning course, we focus on the purpose of a financial statement audit and the numerous responsibilities of a financial statement auditor as prescribed by both PCAOB and U.S. GAAS auditing standards, including what it means to be “independent”. Additionally, we introduce the various risks that a financial statement auditor must consider and address.

By the end of this course, you should be able to:

  • Recall general responsibilities and requirements of an independent auditor, including various independence requirements
  • Identify the differences between audit risk, risk of material misstatement, and detection risk

Audit planning and materiality

Behind every successful audit is a well-designed planning process. So, what are the key elements of planning that produce an effective audit? Find out the formula for a successful “audit method” in this CPE-eligible (1.0 CPE) eLearning course. This course details the planning requirements under the auditing standards and explains the role of materiality in planning an audit, including how audit risk and materiality impacts the nature, timing, and extent of procedures performed during the audit. Materiality requirements under the auditing standards are also discussed. This course covers AU-C Sections 300 and 320 and AS 2102 and 2105. Are you ready? Grab your supplies and join us in the audit laboratory!

By the end of this course, you should be able to:

  • Identify the components of the audit planning process
  • Recall the purpose of materiality in the audit planning process

Audit evidence

“Sufficient appropriate audit evidence” is a phrase mentioned by U.S. Generally Accepted Auditing Standards (AU-C Section 500), International Auditing Standards (ISA 500), and PCAOB Auditing Standards (AS 1105). We know it is critical to be able to conclude that we, as auditors, have obtained enough evidence to provide a basis for our audit opinion. But what does this mean? Is it judgmental? Or formulaic? What can be considered audit evidence? What are the key attributes of good audit evidence?

In this 1.0 CPE-eligible eLearning course, we’ll explore the answer to those mysteries and more as we take a closer look at the definition of audit evidence, how much audit evidence is required, and how to tell if it is relevant and reliable. You’ll consider the interaction between audit evidence and financial statement assertions, specific audit procedures, selecting items for testing, and you’ll even explore evidence obtained from others. This course is a must for any auditor, whether auditing under U.S. GAAS or PCAOB audit standards! 

By the end of this course, you should be able to:

  • Define audit evidence and the key components of the definition
  • Recall the various forms and sources of audit evidence
  • Identify procedures to be performed when evaluating information to be used as audit evidence
  • Recall the additional requirements for using the work of management's specialist as audit evidence
  • Recall the specific considerations regarding the use of external information sources

Supervision, Audit Documentation, and Review

Fundamental to any quality audit is the supervision of the engagement, the thoroughness of audit documentation, and the careful review of the audit work performed and documented. In this CPE eligible (1.0 hour) eLearning course, we will explore the considerations around supervision of engagement teams, fundamental requirements for audit documentation, and key concepts for reviewers, including the engagement quality control reviewer. This eLearning course covers the following relevant guidance: AU-C Sections 220 and 230 / AS 1201 (Supervision), AS 1215 (Documentation), and AS 1220 (EQR).

By the end of this course, you should be able to:

  • Recognize the important considerations in supervising an audit engagement
  • Recall minimum documentation requirements to demonstrate procedures performed, audit evidence obtained, and conclusions reached
  • Identify integral objectives of a thorough review of audit workpapers, including the requirements of an engagement quality control review

About GAAP Dynamics  

We’re a DIFFERENT type of accounting training firm. We don’t think of training as a “tick the box” exercise, but rather an opportunity to empower your people to help them make the right decisions at the right time. Whether it’s U.S. GAAP training, IFRS training, or audit training, we’ve helped thousands of professionals since 2001. Our clients include some of the largest accounting firms and companies in the world. As lifelong learners, we believe training is important. As CPAs, we believe great training is vital to doing your job well and maintaining the public trust. We want to help you understand complex accounting matters and we believe you deserve the best training in the world, regardless of whether you work for a large, multinational company or a small, regional accounting firm. We passionately create high-quality training that we would want to take. This means it is accurate, relevant, engaging, visually appealing, and fun. That’s our brand promise. Want to learn more about how GAAP Dynamics can help you? Let’s talk!


This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

New call-to-action
New call-to-action

Comments (0)

Add a Comment

Allowed tags: <b><i><br>Add a new comment:

Ready To Make a Change?

Cookies on the GAAP Dynamics website

To give you the best possible experience, this website uses cookies. By continuing to browse this website you are agreeing to our use of cookies. For more details about cookies and how to manage them, please see our privacy policy.