By Jay Dismukes

Grief and public distrust notwithstanding, the financial reporting scandals of the last two years have made a compelling case for the accounting profession to get back to the basics—a point that has been raised by many both internally and externally. Though a standard that insiders maintain already was in the works prior to Enron, WorldCom and the like, SAS 99, the Auditing Standards Board’s new auditing standard for fraud, and its call for outside auditors to develop a “mindset that fraud can occur” appear to embody that notion.

During the Foundation for Accounting Education’s July 10 Fraud Conference, Sally L. Hoffman, a member of the New York State Society of CPAs and the American Institute of CPAs’ SAS 99 Task Force, reaffirmed a remark made earlier in the day by former U.S. Attorney Mary Jo White that the standard could help restore investor confidence in the marketplace and the CPA profession. Because auditors tend to grow comfortable around their clients, Hoffman said SAS 99 helps to maintain an appropriate professional relationship and distance between the two parties.

Among other things, Hoffman said the standard, which superceded SAS 82, encourages auditors to have more discussions among the engagement team to consider all possibilities for fraud risk; to more closely examine items such as adjusted journal entries, estimates and business rationale; and to make inquiries at all levels of management. She also suggested speaking to individuals outside of the accounting department as well as lower-level staff.

“Those people don’t necessarily know what the ‘correct’ answer is,” Hoffman said of lower-level employees who would be more inclined to give auditors straightforward answers than management perhaps would.

However, not everyone is so certain that SAS 99 will be able to live up to its expectations and provide enough ballast to right a tilting corporate ship. According to one of the discussion panelists, G. Michael Bellinger, a white-collar criminal defense lawyer, SAS 99 does more to protect CEOs and CFOs than it does for accountants. He said the standard provides defense counsel with a “road map” to cross-examine outside auditors, inquiring as to whether they complied with all of SAS 99’s requirements.

“I will ask auditors of all levels questions about the notion of professional skepticism and how much they exercised it,” said Bellinger, a partner with Dorsey & Whitney, LLP.

Though Hoffman, a partner with Berdon LLP, agrees that SAS 99 could be a useful tool to defend a company’s officers, she said auditors are vulnerable targets irregardless. Therefore, she believes correctly and completely following SAS 99 procedures can still provide auditors with an added level of protection. She further reminded Bellinger that audit committees also are expected to shoulder more responsibility and would be examined for their participation, or lack of, in the event of fraud.

Bellinger replied that he would not rely on audit committees for “too much comfort,” noting the committee members have the advantage of being able to say that they were satisfied with the answers they were given by management.

To help prevent an attack on the outside audit, Bellinger recommends that the engagement team document all findings and discussions in writing, keeping notes taken as professional and to the point as possible. Though each audit is different, he also believes that accounting firms should standardize a list of procedures that they routinely follow for each audit they perform.