The Importance Of Auditing Standards

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Auditing standards are currently seen as incredibly important to the Auditing profession and the Financial Industry as a whole. However, these standards were not always in place. Auditing was previously self-regulated and lacked guidance. Due to the many accounting scandals, stock crash, and securities market reforms that occurred, auditing was reformed, providing stronger requirements and placing more responsibility on those in charge. The McKesson & Robbins scandal of 1938 was the first catalyst for auditing reform. It was found that McKesson & Robbins had “’fraudulently represented its assets’ and that its affairs were being ‘carelessly conducted and mismanaged’” (Baxter,1999, p.165). The SEC investigated the audit firm used by McKesson & Robbins, PW. During this investigation, SEC found PW had “failed to employ that degree of vigilance, inquisitiveness, and analysis of the evidence available that is necessary” (Baxter, 1999, p. 172). The PW retorted that they had conformed to standards then applicable. As a result, the American Institute of Certified Public Accountants (AICPA) issued a new set of standards. The first set issued by the Auditing Standards Board (ASB) were the Statements of Auditing Procedures, which lasted from 1939 until 1972. In addition …show more content…

65). Classification provides assurance that information is recorded and properly presented in the correct accounts (AU Section 326, p.1863). Auditors often gather evidence by evaluating which items should have been expensed and which should have been capitalized. Understandability procedures ensure that disclosures are stated in a way that can be understood by financial statement users. This includes using simple language, such as shorter words and unambiguous sentences, and transparent ideas back by sufficient context (Smith & Taffler, 1992, p.

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