Guidance issued on management override of internal controls.

As part of its ongoing fraud-prevention program, the AICPA has issued guidance to help audit committees understand one of the most significant of fraud risks: management override of internal controls. The guidance, Management Override of Internal Controls: The Achilles 'Heel of Fraud Prevention--The Audit Committee and oversight of Financial Reporting, is available flee of charge through the Audit Committee Effectiveness Center at www.aicpa.org/audcommctr (go to "Spotlight Area").

One of the most common examples of management override is the posting of fictitious journal entries to overstate revenues or understate expenses. In this scenario, the chief financial officer and controller generally are the architects of the fraud, with lower-level accounting employees serving-usually through fear of losing their jobs or naivete--as accomplices.

In most instances, the fraud is intended to be a temporary solution to a missed earnings target. One false financial report, however, invariably leads to another, resulting in a domino effect that culminates in the collapse of the company. According to the Association of Certified Fraud Examiners' "2002 Report to the Nation on Occupational Fraud and Abuse," the average length of time from inception of a financial-statement fraud to its detection is 25 months.

Management...