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In a basic sense, auditing can be defined as the examination and verification of financial reports. Auditors ensure that specific principles are being followed. The auditing standards accounting professionals follow are set by government agencies and financial boards around the world. Some countries may have similar standards, but no two sets are exactly the same. There are many reasons for this. One is that different countries view and practice accounting and financial reporting in very different ways. In most cases, a country's accounting practices revolve around the needs of its government. No two countries are run exactly the same way, and so it follows that each country has a special set of rules.
Two of the more popular groups issuing accounting standards today are the Fair Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The FASB is the board that sets the standards for United States Generally Acceptable Accounting Principals (GAAP). Most developed countries have a set of GAAP, and within these rules and guidelines are auditing standards. The IASB's set of guidelines is titled the International Financial Reporting Standards (IFRS).
In addition to the basic auditing standards that can be found within a country's GAAP, two groups have released more specific standards. The American Institute of Certified Public Accountants (AICPA) created a ten point guideline for Generally Accepted Auditing Standards (GAAS). This framework includes sections for general standards, field work standards, and reporting standards. The International Federation of Accountants (IFAC) hosts a group called the International Auditing and Assurance Standards Board (IAASB) which has developed its own International Standards on Auditing (ISAs). A list of these standards may be viewed at the website of the IFAC.
Altogether, these groups may seem like a lot to keep up with. In reality, there are many more groups that issue auditing standards, and it is difficult to fully know each and every rule. It is important for international investors to know what kind of standards each country has. Many advocates of global trade feel that the sheer volume of auditing standards causes potential investors to shy away from entering the global marketplace. Many of the government agencies and financial boards agree and they have begun a convergence of their accounting and auditing standards.
The FASB and IASB have been working to converge U.S. GAAP and IFRS into one standard set of rules which can be used by businesses worldwide. The end result of this convergence is that a business with international dealings prepares two sets of financial reports: one according to the converged guidelines and one according to the GAAP of its home country. Auditing is handled in much the same way with each set of financial statements being audited using the standards of the specific group it was prepared for.