SAS Number 99 and the Corporate Audit Term Paper

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SAS Number 99 and the Corporate Audit

This report attempts to explain how the new SAS No.99 will change the way accounting firms will be required to conduct corporate audits. News about the collapse of Enron continues to dominate the American media circuits and in the wake of the now infamous Enron accounting scandal, accounting firms will be required to pay more attention then ever. Since the recent American Institute of Certified Public Accounts issue of SAS 99, the approach of auditors in the United States will for ever more be greatly enhanced. With SAS 99 for example, external auditors will be required to discuss and gather facts with internal auditors. As of SAS 99, corporate America will now be required to monitor and share the findings of internal auditors who may be privy to critical fraud-related data residing with their clients. SAS 99 will therefore provide new opportunities for external and internal auditors to partner up and therefore improve external audit process.

As can be expected, the Enron collapse in Texas and the WorldCom scandal in Mississippi have each dramatically demonstrated how critical it is that regulating bodies ensure that Corporate America provides high quality, trustworthy, and reliable financial reporting. "The 40-year-old accountant is accused of creating and managing the complex web of partnerships that disguised the true state of affairs at the disgraced energy firm." (BBCi, Enron finance chief denies charges) Enron basically opened America's eyes into what may actually be going on in many organizations throughout our nation. The philosophy of everyone must be doing it was confirmed only a few short months later when the chief financial officer of the telecoms giant WorldCom was indicted because of another multi-billion dollar accounting fraud.

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"The company's collapse followed exposure of an accounting fraud, now put at $7.68bn (£5bn), which made the company look profitable when it was not." (BBCi, "Ex-WorldCom finance boss indicted")

America has been forced to demand that the boards of directors, internal and external audit committees and anyone else perpetrating financial reporting fraud should be held accountable. The American Institute of Certified Public Accounts concurs. The consensus is that internal auditors should be able to discriminate between an organization's fraudulent financial reporting methodologies and external auditors should be aware that fraud is a very real possibility thus eliminating the rubber stamp audit. Therefore, Enron and WorldCom in a sense have ensured that both external and internal auditors will from this point forward work together to recognize attempted fraudulent reporting for financial information.

There is no doubt that any audits conducted throughout 2003 were very different from those conducted prior to Enron and WorldCom. There were numerous scenarios throughout 2002 and 2003 where organizations purposely manipulated their books to make themselves either look profitable or at least solvent. The accounting community is now on high alert. No firm wants to be the next Arthur Anderson. The American Institute of Certified Public Accounts issued the new audit standards that focus specifically on nabbing fraud offenders. The standards, SAS 99, went into effect on December 15, 2002.

It is critical that an audit team, be it internal or external, recognize when fraud related conditions are caught. The main objective of the American Institute of Certified Public Accounts SAS 99 focuses on the three fundamental areas usually present in a fraudulent….....

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