New fraud audit standard will help auditors uncover fraud; cornerstone of comprehensive anti-fraud program.

A new fraud audit standard recently approved by the Auditing Standard Board officially launches the AICPA's anti-fraud program designed to rebuild investor confidence in our capital markets and re-establish audited financial statements as a clear picture window into corporate America. From providing CPAs with clarified and focused auditing guidance to establishing a new institute on fraud studies, the AICPA is determined to help reduce the incidents of financial statement fraud.

Statement on Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit, carries the same title as its predecessor but is clearly more far-reaching than SAS No. 82. The new provisions of SAS No. 99 include sections dealing with: brainstorming the risks of fraud while emphasizing increased professional skepticism; discussions with management and others as to whether they are aware of fraud; the use of unpredictable audit tests; and responding to management override of controls by requiting on every audit certain procedures responsive to detecting management override. The new auditing standard is effective for audits of financial statements for periods beginning on or after Dec. 15, 2002; however, the AICPA is encouraging firms to implement the new auditing standard early.

More specific information on the new fraud audit standard as it relates to members in public practice, or members in business and industry or internal audit is provided in the respective member-segment supplements produced with this issue of The CPA Letter. Information for the other segments will be covered in upcoming issues.

AICPA President and CEO Barry C. Melancon announced anti-fraud initiatives in his Sept. 4 speech at the Yale Club in New York (The CPA Letter, Sept., pages 5-8). Taken together, the initiatives establish a culture that preventing and detecting fraud is everybody's business--the auditing community, corporate America and the financial reporting community (including analysts and the stock exchanges).

In changing the accounting profession's attitude toward fraud, two things need to occur. On the one hand, we must raise awareness within corporate America, as the first line of defense against fraud is preventing it in the first place. A second line of defense is corporate employees who identify and report fraud. On the...