Taking a bite outta fraud.

• Position: Fraud Standards - Statement on Auditing Standards 99: Consideration of Fraud in a Financial Statement Audit

Among the lessons learned over the past year, one that has long concerned CPAs was again highlighted: the expectation gap between what the public believes the auditor's responsibility for detecting fraud should be and the actual responsibility.

To support CPAs in this new and often confusing environment, the AICPA has launched an Anti-Fraud and Corporate Responsibility Program to rebuild investor confidence in capital markets and re-establish audited financial statements as a clear picture window into corporate America.

NEW FRAUD AUDIT STANDARD

The cornerstone of the program is the new audit standard, Statement on Auditing Standards 99: Consideration of Fraud in a Financial Statement Audit.

Although the new standard has the same name as its predecessor, it is more far-reaching than SAS 82 in that SAS 99 provides U.S. auditors expanded guidance for detecting material fraud and will result in a substantial change in auditor performance.

The standard includes four key provisions:

* Increased Emphasis on Professional Skepticism. Putting aside any prior beliefs as to management's honesty, members of the audit team must exchange ideas or brainstorm how fraud could occur.

These discussions are intended to identify fraud risks and should be conducted while keeping in mind the characteristics that are present when frauds occur: incentives, opportunities and ability to rationalize.

Throughout the audit, the engagement team should think about and explore the question, "If someone wanted to perpetrate a fraud, how would it be done?" From these discussions, the engagement team should be in a better position to design audit tests responsive to the risks of fraud.

* Discussions with Management. The engagement team is expected to inquire of management and others in the organization as to the risk of fraud and whether they are aware of any frauds. The auditors should make a point of talking to employees in and outside management.

Giving employees and others the opportunity to "blow the whistle" may encourage someone to step forward. It also might help deter others from committing fraud if they are concerned that a co-worker will report their actions.

* Unpredictable Audit Tests. During an audit, the engagement team should test areas, locations and accounts that otherwise might not be tested. The team should design tests that would be unpredictable and unexpected by the client.

* Responding to Management Override of Controls. Because management is often in a...