AICPA Takes Steps to Improve Investor Confidence | AccountingWEB

AICPA Takes Steps to Improve Investor Confidence

Correction: In our item this week headed "New Accounting Standard SAS 99 to Begin December 15, 2003," we indicated that the new standard is effective for audits performed for periods beginning on or after Dec. 15. We need to make clear that this new standard is effective for audits performed for periods beginning on or after Dec. 15, 2002 (not 2003).

Audits performed for periods beginning on or after Dec. 15, 2002 would and will have to comply with the AICPA directive, which requires accounting firms to do more to prevent fraud.

The rule, Statement on Accounting Standards 99, or SAS 99, was part of the AICPA's overall effort to boost investor confidence after a series of corporate scandals.

"The standard reminds auditors that they must approach every audit with professional skepticism and not assume that management is honest. It puts fraud at the forefront of the auditor's mind," said AICPA president and CEO Barry Melancon when the standard was unveiled a year ago.

"For years we've been very careful not to use the f-word (fraud) with clients," said Barry Schloss, audit and accounting partner at Gorfine, Schiller & Gardyn in Owings Mills, Md. Schloss told the Baltimore Business Journal, "Now, we have to hold a meeting (internally) where we have to talk about fraud and where it might occur, then go into the client's office and say, 'It's time to talk about fraud.'"

Michael Manspeaker, a member of the AICPA board that developed the new standard, said the push for a tougher rule started in 2000, after AICPA research showed "that auditors did a pretty good job of identifying risk factors [for fraud] but translating that into audit procedures was something where guidance was lacking."

Even if a company has sound anti-fraud policies in place, accountants say most frauds involve employees overriding internal controls, which the SAS 99 requirements are intended to combat.

Features of the audit standard include: an increased emphasis on professional skepticism, open discussions with management about fraud, unpredictable and unexpected audit tests and tests for management override of internal controls on every audit.

The rules could increase the cost of audits by up to 30 percent, according to industry estimates. Complying with the Sarbanes-Oxley Act, the sweeping corporate governance law passed last year, may cost even more.

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