Professional skepticism; Brainstorming sessions among key engagement personal; Information gathering; Risk Identification; Evaluation of an entity's programs and controls; Results of the Assessment; Communication of possible fraud and
Thursday, October 25, 2012
US-Based SAS 99
SAS 99 is a US-Based standard established to provide guidelines to auditors (in the USA) when considering fraud in the audit of financial statements. The standard was drawn in response to accounting scandals such as Enron, WorldCom, Adelphia, and Tyco, the Statement on Auditing Standards 99 (SAS 99) was issued by the Auditing Standards Board of the AICPA in 2002 within the powerful legislation of the Sarbenes-Oxley Act 2002. The Sarbanes-Oxley Act or more commonly known as SOX “requires all public companies to provide more financial information than ever before, and holds corporate directors and officers personally accountable for the accuracy of financial disclosures”. Essentially, the Act which is enforceable to all companies in the USA (and their respective subsidiary and associate companies elsewhere globally) is administered by the Securities and Exchange Commission (SEC). For public companies, the SEC sets deadlines for compliance and publishes rules on requirements. Because it is rules-driven, any standards or guidelines issued within its legislation are known as “rules-based”. SAS 99 is one example of rules-based auditing standards. Effectively, auditors must comply with all the detail rules when auditing a company’s financial statements. Many accountants and auditors favor the prospect of using rules-based standards, because in the absence of rules they could be brought to court if their judgments of the financial statements were incorrect. When there are strict rules that need to be followed, the possibility of lawsuits is diminished. Having a set of rules can increase accuracy and reduce the ambiguity that can trigger aggressive reporting decisions by management. SAS 99 is part of the AICPA’s anti-fraud program which aims to provide accountants and auditors with clarified and focused auditing guidance on fraud. Similarly, it reemphasizes the role of entity management and boards in preventing and detecting fraud. With the prospect of using SAS as a guideline to consider fraud when auditing financial statements, the standard has been arranged to cover nine key components: Description and characteristics of fraud;Documentation of the auditor's consideration of fraud.