Auditing Standards Board Addresses Fraud

By Ray, Thomas; Mancino, Jane | Journal of Accountancy, June 1996 | Go to article overview

Auditing Standards Board Addresses Fraud


Ray, Thomas, Mancino, Jane, Journal of Accountancy


In May, the American Institute of CPAs auditing standards board issued an exposure draft of a proposed Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit. The proposed standard's goals are to help auditors detect material misstatements caused by fraud and to reaffirm the auditor's responsibility with respect to material misstatements. It also is intended to help close the expectation gap relating to a CPA's responsibility to detect fraud.

A performance standard

The proposed SAS provides expanded operational guidance on the consideration of fraud in conducting a financial statement audit. Although the auditor's responsibility to detect material misstatement due to fraud did not change, the ASB concluded that a performance standard was needed to support the auditor in executing that responsibility.

The proposed SAS is likely to affect the audit process in several ways. The auditor would be expected to

* Specifically assess the risk of material misstatement of the financial statements due to fraud and consider that assessment in designing audit procedures.

* Consider fraud risk factors that relate to fraudulent financial reporting and misappropriation of assets in certain categories and other conditions identified that change or support a judgment regarding the assessment.

* Obtain management's view of the risk of material misstatement resulting from fraud.

* Document in the working papers evidence of the performance of the assessment, including how risk factors were considered.

* Document risk factors, individually or in combination, that the auditor believes significantly affect the risk of material misstatement, and the auditor's response to those factors.

* Document changes in the assessment that may occur during the audit and any further response that the auditor concluded was appropriate. …

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