Managing Fraud Risk: A Practical Guide for Directors and Managers

SAS 99: Considerations of Fraud in a Financial Statement Audit

Introduction

Statement on Auditing Standards No.99: Consideration of Fraud in a Financial Statement Audit (“SAS 99”)⁸ is an auditing statement issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (“AICPA”) in October 2002. It was issued partly in response to the series of high-profile fraud scandals around the turn of the century involving large US corporates: Enron, WorldCom, Adelphia and Tyco. These were essentially accounting frauds, involving manipulation of the financial statements by senior executives within these large corporations. There was great concern in the investor community in the US that these frauds had not been uncovered by external audit.

SAS 99 puts significant new requirements on the work of external auditors regarding fraud and it increases the emphasis that should be placed on fraud risk during an audit, as follows:

In planning and performing the audit to reduce audit risk to an acceptably low level, the auditor should consider the risks of material misstatements in the financial statements due to fraud.

It is important to say that there has been no change in the auditor's responsibilities as a result. The auditor still does not have responsibility for detecting fraud. The audit responsibility remains to plan and perform the work so that there is a reasonable chance that material misstatements in the financial statements will be uncovered.

SAS 99 has ...