A
new fraud audit standard recently approved by the
Auditing Standard Board officially launches the AICPA's
anti-fraud program designed to rebuild investor
confidence in our capital markets and re-establish
audited financial statements as a clear picture window
into corporate America. From providing CPAs with
clarified and focused auditing guidance to establishing a
new institute on fraud studies, the AICPA is determined
to help reduce the incidents of financial statement
fraud.
Statement on Auditing Standards No. 99, Consideration
of Fraud in a Financial Statement Audit, carries the
same title as its predecessor but is clearly more
far-reaching than SAS No. 82. The new provisions of SAS
No. 99 include sections dealing with: brainstorming the
risks of fraud while emphasizing increased professional
skepticism; discussions with management and others as to
whether they are aware of fraud; the use of unpredictable
audit tests; and responding to management override of
controls by requiring on every audit certain procedures
responsive to detecting management override. The new
auditing standard is effective for audits of financial
statements for periods beginning on or after Dec. 15,
2002; however, the AICPA is encouraging firms to
implement the new auditing standard early.
More specific information on the new fraud audit
standard as it relates to members in public practice, or
members in business and industry or internal audit is
provided in the respective member-segment supplements
produced with this issue of The CPA Letter.
Information for the other segments will be covered in
upcoming issues.
AICPA President and CEO Barry C. Melancon announced
anti-fraud initiatives in his Sept. 4 speech at the Yale
Club in New York (The CPA Letter, Sept., pages
5-8). Taken together, the initiatives establish a culture
that preventing and detecting fraud is everybody's
business — the auditing community, corporate America
and the financial reporting community (including analysts
and the stock exchanges).
In changing the accounting profession's attitude
toward fraud, two things need to occur. On the one hand,
we must raise awareness within corporate America, as the
first line of defense against fraud is preventing it in
the first place. A second line of defense is corporate
employees who identify and report fraud. On the other
hand, auditors need enhanced auditing skills —
especially interviewing skills — coupled with
greater professional skepticism. Auditors must ask the
right questions and question the answers, and obtain
audit evidence that supports the answers. Moreover,
auditors who identify fraud risks must know how to change
audit procedures to handle the situation.
Besides the new fraud audit standard, specific AICPA
anti-fraud initiatives include:
- Establishing an Institute for Fraud Studies, in
conjunction with the University of Texas at
Austin and the Association of Certified Fraud
Examiners, to explore the origin of and
circumstances surrounding fraud so that its
frequency and effects can be minimized.
- Designing anti-fraud criteria and controls
intended for public corporations.
- Urging stock exchanges to mandate effective
anti-fraud training for management, boards of
directors and audit committees and making
available training to directors and other
corporate officials free of charge.
- Calling on CPAs to dedicate 10% of their CPE to
fraud.
- Recommending the Auditing Standards Board enhance
existing attestation standards for CPAs to test
and report on client anti-fraud controls and
criteria.
- Hosting a fraud summit to identify ways to reduce
the incidence of fraud.
- Working to ensure college textbook authors
incorporate anti-fraud education in programs and
text materials.
Over the next few weeks and months, the AICPA will be
releasing various programs and materials to help members
fully understand and comply with the new standard —
and see their responsibility in fraud prevention and
detection. From continuing education courses and
conferences, to practice aids and a fraud competency
model for auditors and chief financial officers (www.cpa2biz.com/CPEConferences/CAT.htm),
a host of resources are in the offing. See the sidebar
for some of what's available.
Continue to watch The CPA Letter and visit
www.aicpa.org as developments unfold regarding fraud
initiatives.
Materials on Fraud Prevention and Detection
- SAS No. 99: Consideration of Fraud in a
Financial Statement Audit (No.
060701CPA11). Price: $13.60 member/$17
non-member. Available Nov. 29.
- Fraud Detection in a GAAS Audit-An
Auditor's Field Guide (No. 006613CPA11).
Provides detailed information, examples and best
practices for implementing the new fraud
standard. Price: pre-publication discount, $58.48
member/$73.10 non-member; without discount,
$68.80 member/$86 non-member. Available Dec. 31.
- Fraud and the Financial Statement Audit:
Auditor Responsibilities Under New SAS (No.
731810CPA11, text; No. 181810CPA11, videocourse).
CPE credit: 8, text; 9, videocourse. Price: Text,
$119.20 member/$149 non-member (pre-publication
discount: $101.32 member/$126.60 non-member);
Video, $148.80 member/$186 non-member
(pre-publication discount: $126.48 member/$158.10
non-member). Available Dec. 31.
- AICPA reSOURCE: Accounting and Auditing
Literature—ORS (No. ORS-XX). Available
only through full subscription. Price: $395
member/$1,195 non-member.
- The CPA's Handbook of Fraud and Commercial
Crime Prevention (No. 056504CPA11).
Valuable reference designed to help CPAs manage
the risk of fraud. Price: $180 member/$225
non-member.
To order any of these products, call 888/777-7077,
shop online at cpa2biz.com
or send an e-mail to service@cpa2biz.com.
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