Consderation of Fraud in a Financial Statement Audit.ppt

SAS No. 99: Consideration of Fraud in a Financial Statement Audit Dr. Donald K. McConnell Jr. Background Auditing Standards Board committed in 1997 to review impact of SAS no. 82 on practice Conclusions: Need to focus not only on auditor’s role in combating fraud, but also roles of management, audit committees, and regulators Focus should be on prevention and deterrence measures, as well as detection of fraud Result Was Issuance of SAS No. 99 Intended to affect substantial changes in auditor performance, improving likelihood fraud would be detected Does not change auditor’s fundamental fraud detection responsibilities Establishes significant additional audit requirements and enhanced fraud detection guidance Most Significant Changes from SAS 82 Required planning discussions among audit team members concerning fraud risks broader guidance concerning sufficient professional skepticism Expanded inquiries of management and others to identify fraud risks Added a third fraud condition: attitude/rationalization Broader guidance for assessing fraud risks Expanded revenue recognition fraud risk guidance Procedures to address risk of management override of controls The Auditor Has a Responsibility to Plan and Perform the Audit to Obtain Reasonable Assurance about Whether the Financial Statements Are Free of Material Misstatement, Whether Caused by Error or Fraud Description and Characteristics of Fraud Fraud a broad legal concept Auditor’s focus should be on activities causing financial statements to be materially misstated, not all fraud Key elements in most fraud schemes: Incentives/pressures Opportunities Attitudes/rationalizations [new to SAS 99] Even fundamentally honest persons can rationalize committing fraud under intense pressures! Description and Characteristics of Fraud (con.) Intent determines whether activities are fraudulent, or due to error Fraud can occur anywhere and anytime involving anyone, regardless of prior experience with a client Fraud schemes ofte