Fraud Author Tracy Coenen

It’s important to understand the guidance given to auditors on the topic of fraud. Accountants performing audits in the United States follow Generally Accepted Auditing Standards (GAAS) in their performance of audits. Additional guidance is provided in the Statements on Standards for Auditing and Review Services (SSARS) and Statements on Auditing Standards (SAS). These sets of authoritative guidance outline the responsibilities that auditors have for finding fraud while performing audits and reviews.

SAS number 99, “Consideration of Fraud in a Financial Statement Audit,” became effective in late 2003. This statement directs auditors to use professional skepticism and to consider that a fraud could have occurred and could materially affect the financial statements. The auditors must consider and identify the risk of fraud, and must continuously evaluate evidence throughout the audit to determine whether or not there are any fraud indicators.

The American Institute of Certified Public Accountants (AICPA) recently issued SSARS number 12, “Omnibus Statement on Standards for Accounting and Review Services.” This applies to reviews, rather than audits. Reviews provide less assurance on the financial statements, as the review procedures are typically less thorough and less detailed than audit procedures. This statement dictates that during a review, the auditor is not required to assess the risk of fraud or develop plans specifically to identify fraud.

The guidance for auditors is continuously evolving as the accounting profession acknowledges that fraud is becoming a bigger issue for clients. All of this alphabet soup can be boiled down to the fact that it is management’s responsibility, not the auditor’s, to prevent and detect fraud. The auditors must consider fraud throughout their procedures, but they do not have an absolute responsibility for the detection of fraud.