The American Institute of CPAs (AICPA) released Statement on Auditing Standards No. 99 (SAS 99) on November 1, 2002. This statement is a bold step forward for the accounting profession. It equips auditors of financial statements with specific steps they should take to detect and report possible frauds.
But auditors have one more hurdle to go. Now, they must wait for the answer to the most important question of all: "Will the rest of the world understand and accept the standard?" To help investors and the general public put SAS 99 in perspective, Chuck Landes, director, AICPA Audit & Attest Team, suggests readers who are not auditors obtain a copy of AICPA's publication on "Understanding Audits and Audit Reports." A quick reading will show that many audit basics have not changed. Examples:
- Financial statements of audit clients are still prepared by corporate management, not auditors. This continues to be the case, despite recent headlines proclaiming, "Auditors accused of misstating financial statements."
- Despite its more casual usage by the press, "fraud" is still a legal determination to be made based on a review of the facts, not a foregone conclusion every time a company revises or restates its financial statements or goes out of business.
- Auditors are still not responsible for acts of fraud committed by management. To explain the auditor's role, Mr. Landes quotes from SAS 99: "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."
- Audits are still not designed to detect all cases of fraud or to guarantee the accuracy of the financial statements. "Someone who is intent on perpetrating a fraud will go to great lengths to fool and trick the auditor," explains Mr. Landes. "Therefore, the audit is able to provide reasonable assurance that financial statements are free of material misstatement and cannot provide an absolute guarantee."
- An auditor's standard report is still not the same as a "clean bill of health." An unqualified audit opinion does not provide positive assurance that a business is a safe investment and will not fail. Nor is it a guarantee of business success.
SAS 99 is available online to subscribers to AICPA reSOURCE on CPA2Biz. The annual subscription fee for AICPA members is $395. Non-members can obtain print copies of both SAS 99 and "Understanding Audits and the Auditor's Report" by calling 888-777-7077. SAS 99 will be available in print form on November 26, 2002.