By Jay Dismukes

Though the CPA has always been charged with auditing the integrity of the financial statements, and doing so with the highest ethical standards, the profession’s bar clearly has been raised in the eyes of the public. Consequently, especially as the dust from highly publicized corporate scandals continues to settle and the market struggles to regain investor confidence, the CPA has assumed an enhanced role—one that former U.S. attorney Mary Jo White believes is intrinsically tied to the detection and prevention of fraud. This crime and stepped-up efforts to combat it are hot button issues that White says are “here to stay.”

“The accountants are expected to do their job with ramrod independence from the clients who hire them and to do it with often and increasingly unrealistically high expectations of what is possible for any audit to accomplish,” said White, former U.S. attorney for the Southern District of New York.

These expectations, according to the Columbia law school graduate, who delivered the keynote address at the July 10 Foundation for Accounting Education Fraud Conference in Manhattan, are unrealistic primarily because of fraud’s very nature to conceal. Nonetheless, White believes that CPAs, as well as all professionals working in the interest of a company and its shareholders, can do a better job of preventing fraud.

Though every instance of fraud may not be caught, the CPA profession should exercise a rigorous set of procedures and thought processes for every audit it conducts. Critical to the detection of fraud and the backbone of the Auditing Standard Board’s new standard, SAS 99, is the mindset of the auditor.

White, whose role has switched to defending companies and individuals accused of securities law violations, says that CPAs conducting audits should be continually “suspicious” of financial malfeasance. To be truly effective, this approach asks that auditors become more familiar with the white-collar criminal mind, a disposition that the attorney said is difficult to characterize or identify.

Borrowing many of the ideas from SAS 99, White said other ways to spot fraud and mitigate its risks include the following:

• Aggressively inquire of management and lower-level staff about fraud risk and allegations of the crime;
• Hold discussions with the engagement team on the possibilities for fraud;
• Explore the tone of the company’s ethical outlook, making certain management pressures do not translate into fraud;
• Stay current with fraud trends;
• Exhibit a strong will toward uncooperative management, and
• Discontinue “check the box” audit methods.

White believes these steps as well as the development of a more vigilant auditor mindset will have a reverberating effect that will lead to a reinvigoration of the internal audit, a rejuvenation of the audit committee and board of directors, and overall improved corporate governance.

“None of this is going to be easy…(Consideration of fraud) is fraught with exposure and uncertainty as to what is required of the auditor,” said White as she attempted to put the CPA’s enhanced role into its proper perspective. “…The difficulty of your jobs and your liability are seldom properly appreciated, but you remain the lynchpin of integrity and strength of the American capital system.”