Aicpa Statements On Auditing Standards

Clarified statements on auditing standards (SAS) are issued by the Auditing Standards Board (ASB). SAS #122-127 were effective for audits ending on or after December 15, 2012. The ASB has completed the Clarity project with the issuance of SAS # 128 in February 2014, effective for audits of financial statement for period ending on or after December 15, 2014.

AICPA Code of Professional Conduct principles prevents vises such as fraud that are experienced in accountancy field. Audit is the best measure of the effect of the fraud that are imposed to investors by accountants. The relationship of the investors and account holders are supposed to be affirmed through auditing to ensure accounting principles are upheld(Weirich, Pearson, & Churyk, 2010). Improper loss of the funds through propagation of the accountant officer should be treated as fraud and criminal activity that should lead to prosecution. Therefore, the paper seeks to relate two fraud cases that have been audited and presenting AICPA Code of

Following the several financial scandals of the early 2000s involving the former notorious companies such as Enron and WorldCom corporations, the Sarbanes-Oxley Act of 2002 emerged. Indeed, SOX required that every publicly traded company CEO and CFO endorse the accuracy of their organizations financial statements prior to the official release. Obviously, the idea behind this decision is certainly a way to ensure the integrity of the upper management which dismisses the existence fraud on the financial statements. However, a discovery of fraudulent information on certified financial statements is subject to civil liabilities and criminal prosecutions.

Imagine trusting your hard-earned money like your retirement savings to a financial adviser or Certified Public Accountants (CPA) only to lose it all in a fraudulent Ponzi scheme. In today’s world of business many organizations, financial planners and accountants are in the news due to the financial ethical breaches that have affected their customers, employees, and the general public. A CPA has to be responsible for their audits and take any punishments as a result of their mistakes, incompetence or illegal actions. CPAs are expected to have integrity in their work,

The American Association of Public Accountants, created in 1887, tasked accounting professionals with the responsibility to ascertain, maintain, and evaluate company financial statements for accuracy, fraud, and compliance utilizing current accounting guidelines. Financial frauds, in the twentieth century, however continued to evaded detection due to loose accounting oversight, and a lack of proper internal and external controls (Events that shaped a century, 2005).

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

Auditors will enter a much expanded arena of procedures to detect fraud as they implement SAS no. 99. The new standard aims to have the auditor’s consideration of fraud seamlessly blended into the audit process and continually updated until the audit’s completion. SAS no. 99 describes a process in which the auditor gather information needed to identify risks of material misstatement due to fraud, assesses these risks after taking into account an evaluation of the entity’s programs and controls and responds to the results. Under SAS no. 99, you will gather and consider much more information to assess fraud risks, than you have in the past (Ramos, 2003).

In light of the accounting scandals that the American public companies experienced at the turn of the century, there was a need for an overhaul of audit standards to protect the shareholders and the general public from the fraudulent misstatement of financial statements. SAS No. 99, which supersedes SAS No. 82, became effective December 15, 2002 and is a basis for defining fraud and the auditor’s responsibility to investigate the potential for material misstatements contained within their financial statements and the possible failure of internal controls. Although, there has been some criticism to SAS No. 99 that some of the suggested processes are merely suggestions and not requirements. In my opinion, the overall statement does a solid job of allowing the auditors to gain reasonable assurance that their opinion is being based on a foundation of good substantive procedures.

Public Company Accounting Oversight Board (PCAOB), a nonprofit corporation that established by Congress and created by Sarbanes- Oxley Act, aims to supervise the audit of the public registered companies to make sure their reports conform the requirements of fairness and independence, in order to protect the interest of information users and investors (“PCAOB”, 2015). Actually, there are three major duties that PCAOB serves: setting auditing standards, inspecting registered public accounting firms and enforcing auditing standards; inspecting registered public accounting firms will be discussed in detail in this paper.

The current Statement on Auditing Standards that deals with fraud in a financial statement audit is:

Investigation and discipline of registered public accounting firms for violations of relevant laws or professional standards.

Since the enactment of the Sarbanes-Oxley Act and the economic downfall following the financial scandals of Enron, Tyco and WorldCom, there has been a heightened expectation fallen upon auditors. The public relies on the auditing profession to detect fraud and material misstatement and potentially prevent economic disasters, similar to what occurred in the early 2000’s. As auditors are required to provide due diligent care to the users/shareholders it is now being suggested by multiple publications that identifying fraud risks during an audit engagement could increase auditors’ liability. Scholars and practitioners have expressed concerns suggesting that the United States legal system in cases of undetected fraud, penalize auditors for investigating fraud risks. And if this to be true, why are auditors’ being scrutinized for simply following auditing standards? SAS no.99 (Statements on Auditing Standards) provides standards and guidance auditors’ are required to follow while considering fraud during a financial statement audit. This includes identifying fraud risks, assessing, evaluating and responding to the identified risks and lastly documenting the considerations of fraud. The article written by Andrew B. Reffett, “Can Identifying and Investigating Fraud Risks Increase Auditor Liability?” examines these liability issues by conducting an experiment that tests whether or not an auditor is liable after

Generally Accepted Auditing Standards or GAAS is “a set of systematic guidelines used by auditors when conducting audits on companies' finances, ensuring the accuracy, consistency and verifiability of auditors' actions and reports” (Lexico Publishing Group, 2008). The following paper will explain the elements of GAAS and how GAAS is applied to audits.

As a way of increasing awareness of possible fraud, SAS No. 82 - “Consideration of Fraud in a Financial Statement Audit”, was issued in 1997 (Riahi-Belkaoui, and Picur 34). This SAS does not modify the basic ARM, but it expands on the guidance for the auditor’s consideration of material fraud in conducting financial statement audits. The SAS increases an auditor’s ability to detect fraud in an organization.

With the development of accounting and the occurrences of accounting scandals, such as Waste management scandal, Enron scandal, and Worldcom scandal, internal control of a company has been paid unprecedented attention. For companies, effective internal control activities can help management to prevent and detect errors or frauds from accounting system so that they can have a better operating circumstance. In 2002, the United State Congress passed Sarbanes-Oxley Section (SOX) 404, which requires management to assess the effectiveness of a company 's internal controls over financial reporting (ICOFR) and requires external auditors to review management 's assessment, and then to provide their own conclusion related to the effectiveness of the ICOFR (Choi, Kim, Kwon, & Zang, 2010). The Sarbanes-Oxley Section 404 indicates the rising concern about accounting scandals in businesses due to ineffective internal control systems.