For purposes of this discussion, assume that auditing postulates form a theoretical foundation for the audit function. From postulates come auditing standards.

Required:

a. Take the eight auditing postulates discussed in the chapter and indicate which auditing standards, in your opinion, may have emerged from which auditing postulates. For each of the auditing standards, discuss why that particular standard may have emerged from a particular postulate.

For your convenience, here is a paraphrased list of both the auditing postulates and auditing standards.

Postulates:

1. Financial statements are verifiable.

2. There is the necessary long-term but a potential short-term conflict between auditors and managers.

3. Effective internal control structures lower the probability of fraud or irregularities.

4. Generally accepted accounting principles result in fair presentation of financial statements.

5. Unless there is evidence to the contrary, what was true in the past will hold true for the future.
6. Financial statements are free from collusive and other unusual irregularities.
7. When examining financial data to express an independent opinion thereon, the auditor acts exclusively in the capacity of an auditor.
8. The professional status of the independent auditor imposes commensurate professional obligations.

Auditing Standards:
1. Adequate technical training and proficiency as an auditor.
2. Independence in mental attitude.
3. Due professional care.
4. Adequate planning and proper supervision.
5. Sufficient understanding of the internal control structure to plan the audit.
6. Sufficient competent evidential matter.
7. Presentation of financial statements in conformity with generally accepted accounting principles.
8. Identification of inconsistent accounting principles.
9. Informative disclosures in the financial statements.
10. A clear-cut indication of the character of the auditor's examination, if any, and the degree of responsibility taken.

b. For each of the eight auditing postulates, describe what you would consider to be the effect on the modern-day audit function if the postulate has no validity. Indicate the reasons for your opinions.