March 2003

The Wheel’s Still in Spin
CPAs Should Embrace New Tone of Profession

Last fall I had an opportunity to participate as a panel member in a video course on the new fraud auditing standard, SAS No. 99, “Consideration of Fraud in a Financial Statement Audit.” My role was to present the “typical” practitioner perspective on ways to implement the new standard as it is adopted into the audit practice this year.

Produced by the American Institute of CPAs and moderated by Michael J. Ramos, a Denver, Colo., CPA and well-known author of AICPA publications, the video also featured panel members Elliott Leary, CPA, director of forensic and litigation services at KPMG in Washington, D.C., and Mark S. Beasley, Ph.D., CPA, assistant professor of accounting at North Carolina State University and a member of the Fraud Task Force of the Auditing Standards Board (ASB).

Our vigorous discussions during the panel session gave me a lot of food for thought, such as whether the new standard will impact our ability to detect fraud. The new SAS does not really change our responsibility to detect fraud; that basically remains the same. But the standard and its efficacy is only half the story. Something else is happening here, and I think that is where the focus should be.

Attitude and approach are changing. Yes, the new SAS is imbued with procedures to follow, but underlying the implementation of the standard is a fundamental message to approach the job in a smarter way and attempt to think outside of the box. I view it as a somewhat folksy approach. Gather all the staff and management of a job together and have a good old-fashioned brainstorming session on a variety of relevant topics that address the likelihood for fraud and the business’s or organization’s susceptibility to it. The practicality of this approach certainly makes a lot of sense. The new SAS demands a push for more communication on the job.

Not only is enhanced communication among audit staff required, but more in-depth interviews and inquiries of the client and its staff become important functions of the audit, too. There is a need to look at the client’s attitude. Do the answers to questions posed to the client and staff make sense? Does the client’s attitude toward the business and its role in it suggest something is amiss? We are urged to keep a level of professional skepticism consistent with the needs of the job.

This obviously is a simplification of a very important standard that must be followed. More important, however, is our approach as professionals to the standard and its modifications. After all, it’s the public’s perception of our attitude that has cast a negative shadow over the profession.

Thousands of us go to work every day, very serious about the jobs we perform. We want to do the “right thing.” But our jobs have become more complex because the business environment has become more complicated. The right thing may not have the clarity it did years ago. As CPAs, we have always been the ones whom the public and our clients have relied on to assure them that things are okay. It’s an awesome responsibility—one that we must undertake with the right attitude.

The CPA profession has to keep pace with the business world’s complex and changing atmosphere. In this fragile time when our profession is reeling from the aftermath of many failures, we need to aggressively demonstrate to the public that we accept our responsibility. We must all work to raise the public confidence in our profession. We cannot take that for granted.

This point brings me back to the new auditing standard. Upon issuance of the prior standard (SAS 82) in 1997, the Auditing Standards Board had committed to further study the impact of the standard. After a series of study groups (in the forms of task force, committee and panel) gathered information, the Fraud Task Force of the ASB was formed in September 2000, well before the horrific audit failures of 2001. This is a little-publicized example of how we were already taking steps to address accounting issues that needed change. In the aftermath of Enron, the Fraud Task Force recognized that it obviously needed to expedite its activity.

The standard is one of the first steps since the passage of the Sarbanes-Oxley Act of 2002 that the profession has implemented to not only improve public confidence but also to improve the audit function. It is only the beginning. The expectation gap between auditor and client (and the general public) is still very wide. The average individual still thinks our job is to discover fraud, no matter how material or immaterial it is to the financial statement itself.

We have to be better communicators. The public needs to understand our professional role, and we need to be sensitive to the public’s expectation of that role. If we need to do more to provide the needed assurance to the public, we should…and we should do it with the right attitude.

president@nysscpa.org