Implications of the Auditing Standards
Both SAS 99 and ISA 240 provide guidance to
financial auditors to consider fraud in the audit of financial statement. Within the Rule-Based, Sarbanes-Oxley
environment in the USA, it is mandatory for auditors to include the proposed
guidance into their audit planning. For
IFAC’s Principle-Based standards, auditors are to use the guidelines to provide
reasonable assurance that the financial statements are free from risks. There are nevertheless, several other
implications of the standards on auditors. Firstly,
it is important to note that both standards (SAS 99 and ISA 240) provide guidance
to auditors in fulfilling their responsibility, as it relates to fraud, in an
audit of financial statements.
Technically, both standards are only applicable to financial statement
audits. However, concepts and guidance
are appropriate for other types of audits. Secondly, the standards ensure that “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.” Although even in a properly planned and
performed audit, auditor may not be able to detect a material misstatement
resulting from fraud, the standards can only provide reasonable assurance
and not absolute assurance. Thirdly, it is the management’s responsibility
to design and implement anti-fraud programs and internal control system to
prevent, deter, and detect fraud. Such
responsibility may include “setting the proper tone from the top”; creating and
maintaining a culture of honesty and ethics; and establishing appropriate
control mechanisms to prevent and detect fraud in organizations.
Both SAS 99 and ISA 240 provide guidance to
financial auditors to consider fraud in the audit of financial statement. Within the Rule-Based, Sarbanes-Oxley
environment in the USA, it is mandatory for auditors to include the proposed
guidance into their audit planning. For
IFAC’s Principle-Based standards, auditors are to use the guidelines to provide
reasonable assurance that the financial statements are free from risks. There are nevertheless, several other
implications of the standards on auditors. Firstly,
it is important to note that both standards (SAS 99 and ISA 240) provide guidance
to auditors in fulfilling their responsibility, as it relates to fraud, in an
audit of financial statements.
Technically, both standards are only applicable to financial statement
audits. However, concepts and guidance
are appropriate for other types of audits. Secondly, the standards ensure that “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.” Although even in a properly planned and
performed audit, auditor may not be able to detect a material misstatement
resulting from fraud, the standards can only provide reasonable assurance
and not absolute assurance. Thirdly, it is the management’s responsibility
to design and implement anti-fraud programs and internal control system to
prevent, deter, and detect fraud. Such
responsibility may include “setting the proper tone from the top”; creating and
maintaining a culture of honesty and ethics; and establishing appropriate
control mechanisms to prevent and detect fraud in organizations.
