The standard, Statement on Auditing Standards (SAS) 99: Consideration of Fraud in a Financial Statement Audit, supersedes the Auditing Standards Board's earlier fraud standard, SAS 82, which carried the same title, and officially launches the AICPA's anti-fraud program that was first introduced by AICPA president Barry Melancon in September.

In a statement released Tuesday, the AICPA called the standard an effort "to restore investor confidence in U.S. capital markets and to re-establish audited financial statements as a clear picture window into Corporate America."

"We feel strongly that the standard will substantially change auditor performance, thereby improving the likelihood that auditors will detect material misstatements due to fraud," said Melancon. "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, as provided by the AICPA, include:

• Increased Emphasis on Professional Skepticism. Putting aside any prior beliefs as to management's honesty, members of the audit team must exchange ideas or brainstorm how frauds could occur. These discussions are intended to identify fraud risks and should be conducted while keeping in mind the characteristics that are present when frauds occur: incentives, opportunities, and ability to rationalize. Throughout the audit, the engagement team should think about and explore the question, "If someone wanted to perpetrate a fraud, how would it be done?" From these discussions, the engagement team should be in a better position to design audit tests responsive to the risks of fraud. 
  
  
• Discussions with Management. The engagement team is expected to inquire of management and others in the organization as to the risk of fraud and whether they are aware of any frauds. The auditors should make a point of talking to employees in and outside management. Giving employees and others the opportunity to "blow the whistle" may encourage someone to step forward. It might also help deter others from committing fraud if they are concerned that a co-worker will turn them in.  
  
  
• Unpredictable Audit Tests. During an audit, the engagement team should test areas, locations and accounts that otherwise might not be tested. The team should design tests that would be unpredictable and unexpected by the client.
  
  
• Responding to Management Override of Controls. Because management is often in a position to override controls in order to commit financial-statement fraud, the standard includes procedures to test for management override of controls on every audit.  

Chuck Landes, AICPA Director, Audit and Attest Standards, said the association commissioned independent academic research projects to help the AICPA improve SAS 82. The final standard incorporates recommendations from the new Public Accounting Oversight Board's Panel on Audit Effectiveness.

SAS 99 is effective for audits of financial statements for periods beginning on or after December 15, 2002, but the AICPA is urging firms, particularly those that audit public companies, to begin earlier implementation. The published standard will be available at the end of October or early November.

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