International Auditing Standards in the United States: Comparing and Understanding Standards for ISA and PCAOB

International Standards on Auditing (ISA) are standards or guidelines that auditors follow when conducting a financial audit of a companies’ financial statements in those jurisdictions that have adopted ISAs or some version of ISAs. These standards are issued by the International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB). ISA covers a wide variety of ground. It designates specific responsibilities of an auditor including how to plan an audit; how to evaluate and conclude on the adequacies of internal controls; how to evaluate audit evidence and draw conclusions from it and how to write an audit report. These are just some of the designated responsibilities among a wide range of auditing requirements. The USA, on the other hand, has its own auditing standards: the so-called Generally Accepted Auditing Standards (GAAS) set forth by the American Institute of Certified Public Accountants for use in private company audits; and the Public Company Accounting Oversight Board (PCAOB), standards which apply to the audits of publicly-owned corporations. The problem for both practitioners and students is that the auditing principles of the ISA and the AICPA are not identical, even though they are moving towards convergence, or at least attempting to do so. That said, the standards of the ISA and AICPA still differ; and this problem is compounded because of the significant differences between the standards of ISA and PCAOB. In fact a study commissioned by the European Community found at least five areas where there are substantial differences. The areas of substantive differences relate to:

• Assessing and reporting on internal control
• Reference to the work of another auditor in a group audit
• Documentation requirements
• Risk assessment and responses to assessed risks.

This is probably one of the most significant differences. Going concern reporting. Under the PCAOB the foreseeable future is limited to 12 months but under the ISA the look forward feature has a different definition. Books have been written on both the PCAOB and ISAs standards. In this proposed book we plan to focus on the differences between the PCAOB and ISA standards. We will cover in a clear and concise way the important differences and similarities between them and provide check lists of dos and donts. This should be of importance to upper level undergraduate students of auditing and auditors in the US and internationally.

About the Authors

Asokan Anandarajan is a professor of accounting and accounting information systems at the School of Management, New Jersey Institute of Technology, based in Newark, New Jersey. He has an MBA and MPhil from Cranfield University, UK and a PhD in accounting from Drexel University, Philadelphia. His research interests relate to earnings management and expectation gap auditing standards. He has published in many peer reviewed research journals including Accounting Horizons, Auditing: A Journal of Practice and Theory, Accounting and Finance, Advances in Accounting, Behavioral Research in Accounting, International Journal of Intelligent Systems in Accounting, Finance and Management, and Research in Accounting Regulation among others, He is a Chartered Management Accountant (UK) and worked at Hewlett Packard (UK) prior to joining academia.

Gary Kleinman has taught auditing for many years at both undergraduate and master’s levels. He teaches in the School of Business at Montclair State University. He has a CPA license and obtained his PhD from Rutgers University, Newark, New Jersey. In addition, Dr. Kleinman has an extensive research background, writing about auditing, auditor judgment, auditor independence, auditor behavior, and statistical sampling in auditing. Some of his many research articles, on auditing and other topics, have appeared in the Journal of Accounting, Auditing and Finance, the Journal of International Accounting Research, Review of Quantitative Finance and Accounting, Research in Accounting Regulation, and in Accounting, Economics and Law: A Convivium. In addition to writing many journal articles, Dr. Kleinman has also coauthored two previous books on auditing, one an academically oriented book and the other a practitioner- oriented text concerning PCAOB and SEC standards on auditing.