The American Institute of Certified Public Accountants (AICPA) has stepped up its effort to combat corporate fraud.

The Auditing Standards Board of the AICPA on Tuesday approved a new standard, Statement on Auditing Standards (SAS) 99: Consideration of Fraud in a Financial Statement Audit. The standard gives U.S. auditors expanded guidance for detecting material fraud.

"The standard is the cornerstone of a multifaceted effort by the AICPA to help restore investor confidence in U.S. capital markets and to re-establish audited financial statements as a clear picture window into Corporate America," the association asserted in a press release.

"We feel strongly that the standard will substantially change auditor performance, thereby improving the likelihood that auditors will detect material misstatements due to fraud," claimed Barry Melancon, AICPA president and CEO. "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."

The key provisions of SAS 99 include:

• Increased emphasis on professional skepticism. The AICPA wants independent auditors to put aside prior beliefs as to a management team's honesty, and advises audit-team members to exchange ideas on how frauds could occur. Those discussions should be conducted while keeping in mind the characteristics that are present when frauds occur: incentives, opportunities, and ability to rationalize.
  
  

Throughout an audit, the AICPA recommends that an engagement team think about and explore the question, "If someone wanted to perpetrate a fraud, how would it be done?" The association thinks those sorts of discussions will put an engagement in a better position to design audit tests responsive to the risks of fraud.

• Discussions with management. The new standard advises engagement teams to ask senior executives whether they are aware of any frauds. Auditors should also make a point of talking to employees in and outside management. The AICPA's accounting standards board believes giving employees and others the opportunity to blow the whistle may encourage someone to step forward. The board also believes it might help deter others from committing fraud if they are concerned that a co-worker will turn them in.
  
  

• Unpredictable audit tests. During audits, the AICPA says engagement teams should test areas, locations, and accounts that otherwise might not be tested. Those tests should be unpredictable and unexpected by the client.
  
  

• Responding to management override of controls. Because a management team is often in a position to override controls to commit financial-statement fraud, the new audit standard includes procedures to test for management override of controls on every audit.
  
  

The AICPA said SAS 99 supersedes the Auditing Standards Board's earlier fraud standard, SAS 82, which carried the same title.

SAS 99 is effective for audits of financial statements for periods beginning on or after December 15, 2002.

S&P Measures Corporate Governance
Most companies do a mediocre job of communicating critical information to investors, according to Standard & Poor's.

On Tuesday, the credit-rating agency unveiled a study that ranks companies in the S&P 500 on their transparency and disclosure.

Using a scale of 1 to 10, with 10 representing the highest level of transparency and disclosure, S&P gave virtually every company in the S&P 500 an overall score of 7 or 8, based on a composite analysis of the companies' annual reports and other regulatory filings.

Just seven corporations in the index received final scores other than 7 or 8.

Baker-Hughes, Bausch & Lomb, and Progress Energy are at the top of the list. At the bottom: American Power Conversion, Apollo Group, Bed Bath & Beyond, and Sanmina-Sci Corp.

The study was based on 98 questions about financial transparency, board and management structure, ownership structure, and investor rights.

The study examines companies that were members of the S&P 500 Index on both June 30, 2002, and on September 30, 2002. It excludes companies for which there may be some regulatory inquiries relating to their public filings. The study also excludes companies for which Standard & Poor's had incomplete information as of June 30, 2002.

• 1
• 2
• next »