Auditing Standards & the SEC

Generally Accepted Auditing Standards (GAAS) are developed and enforced by the public accounting profession. The Securities and Exchange Commission (SEC), however, also exercises responsibility with respect to the auditing of public companies, and conducts its own auditing enforcement activities. In recent years, the quality of audits has come under increasing scrutiny, and many users of audited financial records have lost some degree of confidence in the truthfulness and fairness of audited financial statements.1

The causes of the contemporary predicament into which the practice of auditing has fallen lies in the increasingly complex demands being placed on auditors.2 The contemporary predicament of auditing is also attributable, in part, however, to the dual responsibilities exercised over the practice of auditing by the public accounting profession and the SEC.3 The perspectives of the public accounting profession and the SEC on the basic focus of the auditing function tends to be different. Where the primary focus of auditing from the perspective of the SEC is fraud detection, the public accounting profession views fraud detection as but one of the functions of the auditor, and not always the most urgent of those functions.4 The thesis of this study is that GAAS should be formulated by the SEC with input from the public accounting profession, as