The following is an overview of the organization and content of SAS No. 99:
Description and characteristics of fraud. This section describes fraud and its characteristics.
The importance of exercising professional skepticism. This section discusses the need for auditors to exercise professional skepticism when considering the possibility that a material misstatement due to fraud could be present.
Discussion among engagement personnel regarding the risks of material misstatement due to fraud. This section requires, as part of planning the audit, that there be a discussion among the audit team members to consider how and where the entity's financial statements might be susceptible to material misstatement due to fraud and to reinforce the importance of adopting an appropriate mindset of professional skepticism.
Obtaining the information needed to identify risks of material misstatement due to fraud. This section requires the auditor to gather information necessary to identify risks of material misstatement due to fraud, by
- Inquiring of management and others within the entity about the risks of fraud.
- Considering the results of the analytical procedures performed in planning the audit.
- Considering fraud risk factors.
- Considering certain other information.
Identifying risks that may result in a material misstatement due to fraud. This section requires the auditor to use the information gathered to identify risks that may result in a material misstatement due to fraud.
Assessing the identified risks after taking into account an evaluation of the entity's programs and controls. This section requires the auditor to evaluate the entity's programs and controls that address the identified risks of material misstatement due to fraud, and to assess the risks taking into account this evaluation.
Responding to the results of the assessment. This section emphasizes that the auditor's response to the risks of material misstatement due to fraud involves the application of professional skepticism when gathering and evaluating audit evidence. The section requires the auditor to respond to the results of the risk assessment in three ways:
- A response that has an overall effect on how the audit is conducted, that is, a response involving more general considerations apart from the specific procedures otherwise planned.
- A response to identified risks that involves the nature, timing, and extent of the auditing procedures to be performed.
- A response involving the performance of certain procedures to further address the risk of material misstatement due to fraud involving management override of controls. The procedures include
- Examining journal entries and other adjustments for evidence of possible material misstatement due to fraud.
- Reviewing accounting estimates for biases that could result in material misstatement due to fraud.
- Evaluating the business rationale for significant unusual transactions.
Evaluating audit evidence. This section requires the auditor to assess the risks of material misstatement due to fraud throughout the audit and to evaluate at the completion of the audit whether the accumulated results of auditing procedures and other observations affect the assessment. It also requires the auditor to consider whether identified misstatements may be indicative of fraud and, if so, directs the auditor to evaluate their implications.
Communicating about fraud to management, the audit committee, and others. This section provides guidance regarding the auditor's communications about fraud to management, the audit committee, and others.
Documenting the auditor's consideration of fraud. This section describes related documentation requirements.
In addition, SAS No. 99 amends SAS No. 1, Codification of Auditing Standards and Procedures (AICPA, Professional Standards, vol. 1, AU sec. 230, "Due Professional Care in the Performance of Work"), and SAS No. 85, Management Representations (AICPA, Professional Standards, vol. 1, AU sec. 336).
SAS No. 99 is effective for audits of financial statements for periods beginning on or after December 15, 2002. Early application of the provisions of this Statement is permissible.
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Additional guidance on the implementation of SAS No. 99 is available at:
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