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April
7, 2003 -- On October 15, 2002, due to the results
of studies on how previously existing fraud standards can
be improved and in consideration of the recommendations by
the Public Oversight Board’s Panel on Audit Effectiveness,
the Auditing Standards Board of the American Institute of
Certified Public Accountants announced it approved Statement
on Auditing Standards (SAS) 99: Consideration of Fraud in
a Financial Statement Audit. The new SAS gives auditors in
the United States expanded guidance for detecting material
fraud. It replaces SAS 82, of the same title.
The AICPA announcement refers to SAS 99 as the “the
cornerstone of a multifaceted effort… to help restore
investor confidence in U.S. capital markets and to re-establish
audited financial statements as a clear picture window into
Corporate America.”
The key provisions to SAS 99 include:
- Increased Emphasis on Professional Skepticism. Audit
team members are to put aside any prior views of management’s
honesty and exchange ideas of how a fraud could occur in order
to help identify fraud risks, including considering the existing
characteristics often present when frauds take place: opportunities,
incentives and the ability to rationalize.
- Discussions with Management. The auditors should inquire
of management and those outside of management as to the risk
of fraud and if they are aware of any fraud. Inquiry outside
of management may encourage someone to report fraud (“Whistleblowing”)
or deter it as a person contemplating fraud may become fearful
a co-worker may report it.
- Unpredictable Audit Tests. Areas and accounts not
usually tested should be covered. The audit team should include
tests that would be unpredictable and unexpected by the client.
- Responding to Management Override of Controls. As
management can be in a position to override controls, the
audit team should include procedures to test for such occurrence.
SAS 99 is effective for audit engagements of financial statements
for periods beginning on or after December 15, 2002 . Early
adoption is encouraged.
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