Auditing in the U.S. means playing by two critical rulebooks: GAAS (auditing standards issued by the AICPA and PCAOB) and GAAP (accounting principles established by FASB). These frameworks define how audits should be performed and how financials should be presented. But the real challenge for auditors isn’t knowing the rules — it’s applying them in live client situations under pressure, within tight deadlines, and with limited documentation.

This guide breaks down how auditors can practically stay compliant with both US GAAS and US GAAP and avoid the most common mistakes that lead to inspection findings and client disputes.

1. Start Every Audit with a Clear Understanding of the Entity's Reporting Framework

Problem:
Audit failures often begin with unclear assumptions about which accounting framework the client follows. While most private companies use US GAAP, many startups and foreign-owned subsidiaries mix in IFRS or tax basis.

Solution:
Confirm the applicable accounting framework during engagement acceptance. Document the basis clearly in your audit planning file. Misalignment here causes misstatements that are hard to justify later.

2. Build Your Risk Assessment Around GAAS, Not Just the Client’s Financial Size

Problem:
Audit teams tend to associate materiality and risk based solely on revenue or asset size, which misses deeper business risks — such as related party transactions, revenue pressure, or complex share-based payments.

Solution:
Use the AU-C Section 315 guidance to structure risk assessment. Focus on inherent risks first (e.g., valuation of crypto assets), and then layer in control risks. This sharpens your audit procedures and helps avoid over-auditing low-risk areas while under-auditing red-flag zones.

3. Master the GAAP Disclosure Requirements for the Client’s Industry

Problem:
Most audit findings stem not from numbers being wrong but from missing or incomplete disclosures. GAAP is specific about what must be disclosed — including risks, estimates, policies, and assumptions.

Solution:
Use the FASB Codification as your checklist. Cross-reference client disclosures line-by-line against codification sections. For example, in construction firms, revenue recognition under ASC 606 must include disaggregation by contract type and timing.

4. Validate Internal Controls, Even When the Client is Small

Problem:
Auditors skip control testing in private company audits assuming it's not required. However, under GAAS, understanding internal controls is mandatory for designing procedures — even if reliance is not placed.

Solution:
Document your walkthroughs thoroughly. Even for small companies, document at least one transaction walkthrough per significant cycle. This builds your audit trail and satisfies documentation under AU-C Section 315 and 330.

5. Treat Revenue Recognition as High Risk by Default

Problem:
Revenue recognition remains the most manipulated and misunderstood area in GAAP audits. Clients often don't understand ASC 606’s five-step model and apply it inconsistently across contracts.

Solution:
Flag revenue as a significant risk during planning. Test contracts end-to-end — from performance obligations to variable considerations and disclosures. A simple percentage-of-completion entry can be risky without strong client documentation.

6. Prepare for Going Concern Early — Don’t Wait Until Final Review

Problem:
Going concern assessments are often rushed at the final stage of the audit. This increases the risk of missing events or conditions that raise substantial doubt about the client’s ability to continue operating.

Solution:
Begin going concern evaluation during planning. Get management’s forecasts and assess liquidity early. Under AU-C Section 570, you must evaluate management’s plans and obtain support for any mitigating factors.

7. Document Professional Judgment in Complex Estimates and Fair Values

Problem:
GAAS doesn’t just require auditors to get comfortable with management estimates — it requires them to challenge and document their professional skepticism. This includes goodwill impairment, contingencies, and asset valuations.

Solution:
Create memos for significant judgments explaining how audit conclusions were reached. Under AU-C Section 540, you must evaluate both the process and assumptions used by management. A file without documentation of skepticism can be interpreted as lack of diligence.

8. Conduct Final Review with PCAOB and Peer Review in Mind

Problem:
Most audit files look complete until a PCAOB inspector or peer reviewer starts asking why certain procedures were skipped or why certain risks were not documented.

Solution:
Use a final review checklist based on peer review deficiencies and PCAOB findings. Review not just for completion but for whether the audit file tells a logical, defensible story. If someone unfamiliar with the file can’t understand your audit decisions, it’s not ready.

Closing Thoughts: Technical Compliance Isn’t Enough — Execution Matters

Staying compliant with US GAAS and US GAAP goes beyond knowing the standards. It’s about how you plan, test, document, and conclude your audit. The strongest auditors don’t just tick boxes — they think critically, communicate clearly, and document defensibly.

Whether you're in a small CPA firm or a larger practice subject to PCAOB inspections, embedding these practices into your audit methodology can reduce risk, build client trust, and elevate audit quality.