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SAS
99 in Full Effect NEW YORK—A year-old anti-fraud standard has gone into effect in earnest recently as practitioners begin to audit financial statements with a mandate for a keener eye and greater skepticism. The standard—the American Institute of CPAs’ Statement on Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit Summary—specifically applies to audits of statements for periods beginning after Dec. 15, 2002. The standard calls for auditors to hold brainstorming sessions with the entire engagement team to discuss how fraud might occur in a client’s company, as well as increased scrutiny of documentation, interviews with client’s employees and other measures to reduce the risk of fraud. While some feared the increased cost of compliance—estimated at as high as 30 percent over previous audit fees—could discourage some firms from having statements audited, the general response has been far less apprehensive, if not outright welcoming. “It might be a nuisance, but if you’re a CPA you want new and fresh opportunities to communicate with your clients and fresh dialogue,” said Martin Leventhal, of Weinick, Sanders, Leventhal and Co. “It’s valuable, it’s mandated and it gives us another reason to tell our clients what we’re about and to find out what they’re about.” Among SAS 99’s provisions are requirements, prior to the engagement, for considering analysis and risk factors, and for discussion among the engagement team of how a statement is susceptible to fraud and how to obtain information to identify risks by speaking with management and appropriate personnel about such risks. These initial assessments could lead to other steps, such as examining journal entries for evidence of material misstatement, reviewing accounting estimates for biases and evaluating business rationales for unusual transactions. The implication of SAS 99 is that new training, preparation and performance of audits in compliance with the standard could all add up to much higher audit fees. But the general response to this as the standard is put in practice has not been what some anticipated. “I haven’t heard any horror stories,” said George Victor, chairman of the New York State Society of CPAs’ SEC Practice Committee. “It is, to a degree, a pain to comply with: it’s another thing you have to do, more paperwork to fill out, but speaking for smaller firms that are grappling with this, I haven’t heard any horror stories. It’s not that difficult to comply with the standard.” Victor said that the potential impact of increased costs will not be determined until the first full fiscal year-end audit reviews are finished. But, he said, the cost will be relative to the size of the company and the amount of transactions the company records, both in year-end top-side adjustments and in routine entries done through the year. The learning curve could also be part of the increased cost, but Victor said firms may just absorb the cost. Victor said the learning curve includes familiarizing staff with the fraud risks they need to be aware of with each client and the types of questions they must ask the client. Though the AICPA developed the standard beginning in 1999, it appeared that its release was in response to the kind of audit failures seen in Enron, WorldCom and others. In such an environment, corporations will see this as simply another task that must be fulfilled to improve financial statements. “Given the sensitivity corporate governance has these days, it was an inevitable outcome in any case,” said Robert Sohr, chairman of the NYSSCPA Accounting and Auditing Oversight Committee. “I haven’t seen (SAS 99) become too much of an issue.” “They know we’re marching to a different drummer,” Leventhal said. “We’re much stricter now.” Leventhal said SAS 99 has actually been a benefit to his firm’s clients, even apart from the audit engagement. He said that clients have started to come up with their own concepts of things the firm needs to look into and “things that make them nervous.” |
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