Audit awareness: SAS Nos. 104-111 fundamentally alter how auditors ply their trade.

• Position: ACCOUNTING & AUDITING - Interview

The AICPA's Audit Risk Standards (SAS Nos. 104-111) are continuing the trend of reworking the landscape of financial statement audits. These standards are effective for audits of financial statements for periods beginning on or after Dec. 15, 2006, and affect the way auditing firms assess the risk of material misstatements in financial statements.

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To gain some insight on the need for, and utilization of, these standards, California CPA recently interviewed CPA Lynford Graham, Ph.D., CFE.

As a former member of the AICPA's Auditing Standards Board and Risk Assessment Standards Task Force, and chair of the Risk Assessment and Risk Response Audit Guide Task Force, Graham was instrumental in developing these Audit Risk Standards. A frequent lecturer on the subject nationwide, Graham also is the author of a handbook on documenting internal controls for non-public companies.

Q: What were the goals and objectives of the ASB and Risk Assessment Standards Task Force?

A: The ASB, in coordination with the International Audit and Attest Standards Board, undertook a joint project in the latter 1990s to clarify many of the core auditing standards and advance more guidance on the role and performance of risk assessment. This was in response to concerns that audits were becoming increasingly risk-based, but there was a lack of guidance on how to go about the risk assessment process.

There were also concerns that, in some cases, too little audit work was being done to identify and correct any errors that might exist in the pre-audit financial statement records.

Auditors of major entities were becoming more reliant on the seemingly improved and automated systems, and internal audit resources of these entities.

The role of the Task Force was to coordinate the domestic and international standards-setting efforts and to make sure the standards fit well within the existing U.S. audit literature in terms of form and language.

The disastrous events and audit failures in early 2000 that lead to the Sarbanes-Oxley Act of 2002 are evidence that the project was on target, but that it was too late to avoid the events of Enron, WorldCom and the litany of business and audit failures in that time period.

SAS No. 99, Consideration of Fraud in a Financial Statement Audit (a revision of SAS No. 82), was originally part of the group of risk assessment standards, but was pulled out of the "suite" and issued as final in early 2002, in response to the stormy climate that was brewing.

While released for exposure here and internationally in 2002, the formation of the PCAOB...