Why Do We Need Auditing Standards?

Why do we need auditing standards? Because we need someone at work that we can trust to tell us the truth.

If you need to know the truth about something important with your health, do you ask your uncle the plumber, for his opinion? “Hey Unc, I’ve been having this weird pain in my chest and it is hard to breathe. Do you think it’s pneumonia?” No way! You go to the internet.

Oh yes, you did! You sure did go to the internet first!

But eventually, if the problem persists, you go see a doctor. Why? Because a doctor is a trusted professional who will have a better sense of what is going on than your uncle.

Now let’s switch it up a little bit.

Let’s say that you are City Manager. And the city has budgeted a few million dollars to fund a new youth complex. You’ve heard rumors that the money is being squandered on programs that were not part of the original budget.

Now who do you turn to for the truth?

You don’t go to the leaders of the youth complex! They are going to report that everything is hunky dory. Why would they get themselves or their team in trouble?

So, you turn to the professional who you know will answer your question; the auditor.

What do auditing standards do?

Why do you trust the auditor? Because they are trained professionals who follow an auditing standard that helps make sure their results are valid and trustworthy.

Auditing standards are designed to guide the auditor and ensure that their work is high quality and based on firm evidence.

The definition of standard is “a level of quality or attainment.” An auditing standard then helps the auditor achieve a high level of quality in their assessment of whether a subject matter meets a certain criteria.

In the case of the youth complex, the auditor would assess whether the subject matter – spending at the youth complex – meets the criteria – which is in this case the budget.

What sort of topics are covered in an auditing standard?

In order to encourage the auditor to maintain their credibility and trustworthiness, an auditing standard contains rules and guidance in the following areas:

Independence: Auditors are required to maintain their professional objectivity regarding a subject matter. If auditors are not independent of the subject matter, their opinions cannot be trusted.

Competence: Auditors must stay up-to-date with the latest standards and auditing techniques so that their audits maintain the highest quality possible. This is usually achieved through continuing education courses and on-the-job training.

Quality Control: Audit documentation is reviewed for compliance with standards multiple times before the audit report is issued.

Planning: As you have always heard, failing to plan is planning to fail. The audit standards require that auditors plan to address the highest risk aspects of their audit subject by requiring them to document a handful of specific audit planning activities.

Evidence: Auditors must support every sentence in their report with sufficient and relevant evidence.

Documentation: Auditors have to write down every major decision they make as well as the evidence they gathered.

Reporting: The structure of an auditor’s report and sometimes the exact language they use is dictated by auditing standards. The standards help make sure the auditor does not mislead the reader regarding what they did, and often more importantly – what they didn’t do!

How do we know if an auditor followed an auditing standard?

The auditor will tell you so in their report. You will find a sentence in their audit report that says something like, “We conducted this audit in accordance with XYZ auditing standard.”

Interestingly, they can’t use that sentence unless another auditor comes in and verifies that the auditor is following standards. These other auditors are called ‘peer reviewers’ and the peer reviewer’s job is to ensure that the auditor has systems in place to make sure that they are following audit standards on all their audits.

Where to look at some auditing standards

Thankfully, most auditing standards are available for free online so you can browse them yourself. Here are some commonly used auditing standards:

GAO’s Yellow Book

IIA International Professional Practices Framework

AICPA Auditing Standards

PCAOB Standards

The International Organization of Supreme Audit Institutions Standards

So now you know who to go to when you need the truth at work – your trusty auditor.

For more on this topic:

The 2018 GAO Yellow Book Interpreted self-study text dives deep into the GAO’s auditing standards.