Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Which standard must an auditor evaluate when forming an opinion on financial statements?

1. Generally Accepted Accounting Principles (GAAP)

2. International Financial Reporting Standards (IFRS)

3. Generally Accepted Auditing Standards (GAAS)

4. Corporate Governance Standards

The correct answer is: Generally Accepted Auditing Standards (GAAS)

When forming an opinion on financial statements, an auditor must evaluate the Generally Accepted Auditing Standards (GAAS). GAAS provides a framework for conducting audits and establishes the necessary guidelines to ensure that audits are performed with consistency, reliability, and professionalism. The principles laid out in GAAS include requirements for auditor competence and independence, the need to obtain sufficient appropriate audit evidence, and the formulation of an opinion based on the audit findings. GAAS effectively governs the auditor's procedures, thereby influencing the credibility and integrity of the audit reports that are issued. While Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) establish the accounting framework that companies must follow when preparing their financial statements, it is GAAS that specifically pertains to how auditors assess and report on those statements. Corporate Governance Standards, on the other hand, typically relate to the structures and processes for managing a company rather than providing guidance for audit engagement. Thus, GAAS is the standard auditors consult when forming an opinion on financial statements.