January 2010
Accountants Alert
Statement on Auditing Standards – Consideration Of Fraud In A Financial Statement
Audit – Slated For Review By The Auditing Standards Board
The Auditing Standards Board (“ASB”) of the American Institute of Certified Public Accountants (“AICPA”) will
review the exposure draft of the proposed Statement on Auditing Standards (“SAS”), Consideration of Fraud in a
Financial Statement Audit, at its January 2010 meeting as part of the continuing Clarity Project.
The ASB will consider a number of issues at the January meeting, including whether the fraud standard should
remain as a “standalone” standard, as opposed to the Public Company Accounting Oversight Board (“PCAOB”)
approach, which is to combine the fraud standard with the risk assessment standards. Extant SAS 99 was
developed as a standalone standard primarily to elevate the concept of fraud as a very specific audit focus, separate
and apart from the overall audit risk assessment and response. The PCAOB is in the process of finalizing its
proposed risk assessment standards, which may, in final form, integrate fraud risk procedures. Comment letters to
be considered by the ASB provide mixed support for both formats.
Also under consideration is the definition of fraud contained in the proposed SAS. The definitions in the extant
SAS 99 and in the PCAOB’s interim standard are identical and clearly limit fraud to situations involving a
“material misstatement of financial statements.” This is also addressed in paragraph .05 of the extant SAS 99 and
paragraph 3 of the proposed SAS, “the auditor’s interest specifically relates to acts that result in a material
misstatement of the financial statements.”
The International Standards on Auditing (“ISA”) definition of fraud differs significantly from the extant SAS 99,
principally by the use of the phrase “unjust or illegal advantage.” The ISA is also broader and does not limit fraud
to “material misstatement in financial statements,” contrary to the extant SAS 99 and the PCAOB interim standard.
Thus, the ASB will consider proposed alternatives for this definition and specific changes.
By way of background, the Clarity Project was developed by the ASB to make U.S. Generally Accepted Auditing
Standards (“GAAS”) easier to read, understand and apply. This goal is similar to a project of the International
Auditing and Assurance Standards Board (“IAASB”) that aims to clarify its ISAs. To meet this objective, the ASB
created the Clarity Project to converge U.S. GAAS with the ISAs while avoiding unnecessary conflict with PCAOB
standards. The ASB has aligned its agenda with the IAASB and has developed its standards based on the ISAs.
This permits the ASB to consider projects simultaneously with the IAASB – and more effectively provide input on
the international standard-setting process.
In March 2007, the ASB established clarity drafting conventions for this project, and over an expected three-year
period, the ASB will redraft all of the auditing sections in Codification of Statements on Auditing Standards, apply
the clarity drafting conventions, and converge the material with the ISAs. This process includes exposure of clarity
redrafts, considering comments, making changes, and finalizing the standards. The ASB expects that nearly all ISA
requirements will also be requirements of U.S. GAAS. However, there may be additional GAAS requirements that
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address issues specific to the U.S. or the retention of current practices. The effective date is expected to apply to
audits of financial statements for periods beginning no earlier than December 15, 2010.
The Clarity Project is at a midpoint, and the agenda for the January 2010 ASB meeting includes the review of
issues raised in comment letters on the exposure draft of the proposed (redrafted) SAS – Consideration of Fraud in
a Financial Statement Audit, Professional Standards, Vol.1, AU Sec. 316 (Extant SAS 99). Eighteen comment
letters were received from CPA firms, state governments, state boards of accountancy, the U.S. Government
Accountability Office and the U.S. Postal Service Office of Inspector General.
A follow-up alert will be circulated after the January meeting to provide the status of this and other matters of
importance to the profession. For further information or assistance with these issues, please contact H. Steven
Vogel at hsteven.vogel@wilsonelser.com; or reach him in our Miami office at 305.341.2243.
The ASB is the senior technical committee of the AICPA, which is designated the authority to issue auditing,
attestation and quality control standards applicable to the performance and issuance of audit and attestation reports
for non-public companies. Of its 19 members, one seat is customarily reserved for an attorney whose practice
involves matters of interest to auditors in public practice. Steve serves as a member of the ASB.
This Accountants Alert is a publication of Wilson, Elser, Moskowitz, Edelman & Dicker LLP and is for informational purposes only. The
views expressed and information provided by Wilson, Elser, Moskowitz, Edelman & Dicker LLP do not represent, nor are intended to
represent, or constitute the views of the AICPA. Information contained herein does not express any position or opinions by the AICPA or its
employees and is not intended to, nor does it, constitute an endorsement of any particular view or opinion by the AICPA or its employees.
Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.
Contact us at alerts@wilsonelser.com.
This communication is for general guidance only and does not contain definitive legal advice.
© 2009 Wilson Elser Moskowitz Edelman & Dicker LLP. All Rights Reserved.
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