Consideration of Fraud
in a Financial Statement Audit
SAS No. 99 Article

by Jill C. Hobbs, CPA Elliot & Warren, PLLC FASB Link

Auditors have been given further guidance on their responsibility in detecting fraud in a financial statement audit through the issuance of SAS No. 99 (Consideration of Fraud in a Financial Statement Audit). This "updated" guidance has been issued partly due to the recent litigations that have affected several accounting firms.

Another large factor in the issuance of SAS No. 99 is the public's perception of auditors. Much of the public believe that auditors performing a financial statement audit should be able to detect fraud in almost all cases. Many also believe the purpose of the audit is simply to find fraud. Auditors, on the other hand, believe that it is impossible for auditors to detect all cases of fraud. This is called the "expectation gap".

There are two main types of audits that accounting firms may perform: Financial statement audits and fraud audits. The purpose of a financial statement audit is to express an opinion on how fairly financial statements represent, in all material respects, the financial position, results of operations, and cash flows of a company, in conformity with GAAP. The purpose of a fraud audit is different in that the auditor is contacted because fraud is suspected or has been discovered and does not express an opinion regarding the fair presentation of the financial statements.

SAS No. 99 requires the audit team to make inquiries of many members of the entity to evaluate fraud risks because the best way to evaluate evidence is to ask questions. These groups are:

• management
• audit committee
• internal audit and
• others in the organization.