Auditing: Complying with the 11 Most Dangerous Standards Gary Zeune, CPA The Pros & The Cons 10356 Wellington Blvd, Suite D Powell, OH 43065 Phone614-761-8911

Auditing: Complying with the 11 Most Dangerous Standards

Gary Zeune, CPAThe Pros & The Cons

10356 Wellington Blvd, Suite DPowell, OH 43065

Phone 614-761-8911Fax 206-202-0880

[email protected]

v3

Auditing: 11 Dangerous Standards

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were not developed for self study or reference uses. These materials are copyrighted. Reproduction of the manual or any portion of it is prohibited unless written permission has been obtained from Gary D. Zeune.

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3. Participants are advised that the Statement on Standards for Formal Continuing Education (CPE) Programs places responsibility on both the individual participant and the program sponsor to maintain a record of attendance at a CPE program.

4. The information the participant should keep on each program is (a) sponsor's name, (b) title and/or description of content, (c) date(s) of the program, (d) location, (e) number of CPE contact hours. This information is found in the printed program for most courses or conferences and/or in a CPE attendance record form. Either or both of these documents should be kept for an appropriate period to enable regular periodic reporting to jurisdictional board(s) and to professional organizations requiring such reports.


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11 Dangerous Auditing Standards

OverviewSAS 102 Defining Professional Requirements SAS 1 Training, Proficiency, and Independence SAS 45 Related PartiesSAS 54 Illegal Acts by ClientsSAS 56 Analytical ProceduresSAS 57 Auditing Accounting EstimatesSAS 59 Consideration of Going ConcernSAS 67 The Confirmation ProcessSAS 85 Management RepresentationsSAS 99 Consideration of Fraud in a Financial

Statement AuditSAS 103 Audit Documentation


6

Bank President


7

Where Danger Comes From…….

“The vast majority [at 90% where the potential damages exceed $10 million] of serious cases brought against accounting firms allege failures to comply with generally accepted auditing standards,” Accountants’ Liability, Practising Law Institute, Goldwasser, Arnold & Eickemeyer. Dan is past chair of the firm's Professional Liability Litigation Practice Group and has defended professionals in 200 liability cases.

Dan Goldwasser212-407-7710

[email protected]


8

Are You Protected?

Question: If you miss a material fraud, get sued, and can show with a parade of experts that you performed a GAAS audit, that you put all the check marks in all the right boxes, is the jury bound to find you not liable?

Yes No

Why? GAAP and GAAS do NOT have the weight of law.


9

Expectation Gap Danger

Auditors

Judges, juries, SEC MIN

MAX


10

GAAP + GAAS Not Good Enough

1. Liability requires scienter 2. Scienter = intentional or reckless conduct

evincing a deliberate disregard for the consequences

3. “Good soldier” defense doesn’t work4. Failure to follow firm’s _____________________

often evidence of scienter

professional standards


11

GAAP + GAAS Not Good Enough

1. SEC v. Arthur Young…..Court of Appeals held for the firm since it fulfilled its professional obligations by complying with GAAS. BUT, the court noted that compliance with GAAP would not immunize an accountant who consciously does not disclose a known material fact.


12

Looking the Other Way

Willful blindness

A person tries to avoid knowing something that will incriminate him. Defendant “knows” anyway because of the high probability of its existence.

Deliberate ignorance

People who, recognizing the likelihood of wrongdoing, consciously refuse to take basic steps to discern the truth.

Conscience avoidance

If a defendant claims a lack of knowledge, and the facts suggest a conscious course to avoid learning the truth, then the defendant may be charged with knowledge.

“Good soldier”

“I was just _________________,” doesn’t _________. WHY ________________.

following orderswork You’re a CPA


13

“I Didn’t Know” Doesn’t Work

Bernie Ebbers CEO Bernie Ebbers CEO Supreme Court refused to Supreme Court refused to hear appeal of 25 year hear appeal of 25 year sentence, 3/5/07sentence, 3/5/07

Scott Sullivan CFO 5 years

Andersen conviction is Andersen conviction is overturned but settles overturned but settles for $65 millionfor $65 million

Buford Yates, Dir Gen Acctg1 year + a day

David MyersController 1 yearBetty Vinson 5 months

Troy Norman 3 yrs probation


14

Average Size of Claims by Engagement Type

0 50 100 150 200 250 300 350 400

Other

Consulting

Executor Trustee

Invest/PFP

Write up/Bookkeeping

Compilation

Review

Audit

Tax

Camico Insurance


15

Frequency & Severity of Audit Claims by Loss

0 10 20 30 40 50

Other

Tax

Adverse Financial: Business Failure

Adverse Financial: Sale/Purchase

Adverse Financial: Business

Adverse Financial: Personal

Creditor

Fraud/Defalcation

Severity Frequency


16

Significant Claims (over $100,000)

0 5 10 15 20 25 30 35

Other

Adverse Financial: Business

Adverse Financial: Personal

Creditor Decisions

Fee Disputes

Tax Loss

Fraud

Severity Frequency


17

Non-public Audit Claims by Cause of Loss

A Perspective on Audit Malpractice Claims, J of A, Sept 2002www.aicpa.org/pubs/jofa/sep2002/anderson.htm


18

Non-public Audit Claims by Client Industry

A Perspective on Audit Malpractice Claims, J of A, Sept 2002www.aicpa.org/pubs/jofa/sep2002/anderson.htm


19

Newspaper Materiality

A little number is material when it gets you or your company or firm on the front page of the paper.


20

Little Numbers That Are Material

Bank loan covenant requires minimum income $1,000,000

1st pass at income $980,000

Reduced bad debt expense +$31,000

Income $1,011,000

Companygets clean

opinion

Goesbankrupt

Bank suesFirm

‘conspired’ with

borrower

Little numbers are material if they accomplish a _________________________SIGNIFICANT EVENT


21

Zero Tolerance CPAs

What used to be OK isn’t any longer….

Example:_____________________________________________________________________________

Is it ethical to allow clients or your

company to take immaterial but

illegal tax deductions?


22

How Can This Happen

Suppose it’s June 2001. . . .

Question: Can a handful of people in a Big-5 firm take the entire firm down over 1 audit client?

Answer: __________________ABSOLUTELY NOT


23

Andersen Fatal Flaw

1. Professional Standards Group

2. Engagement partners could override PSG


24

Accountants Under Fire

For decades the accounting profession basked in the highest kind of public confidence. Now all at once there are more than 50 major lawsuits pending against the big public accounting firms, charging irregularities and negligence in preparing earnings reports and other financial statements. With equal suddenness a barrage of public criticism has landed on the profession for its highly flexible "generally accepted accounting principles." Perhaps most worrisome of all to the CPAs and to the management that employ them, the Securities & Exchange Commission has been issuing thinly disguised threats to take unilateral action if the accountants themselves do not quickly tighten up their rules.

Under the present accounting rules, there is a very fine line between "maximizing" and plain, old-fashioned, manipulation.

FORBES, May 15, 19_____


25

The “Enron” Effect

1. Pre-Enron – It doesn’t say I can’t do this.

2. Post-Enron – Show me where it says it’s ___ to do this.OK


26

Right vs. Right


27

Auditing Standards Overview

1. Two broad categories1. Practice standards2. Ethical standards

2. Violations of practice standards are ethical violations

3. AICPA and societies Codes of Conduct are broad 1. Delineated by rules

1. Explained by interpretations1. Supported by various committees


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10 Auditing Standards

10 auditing standards, all other pronouncements are SASs

3 “General” Standards 1. Training and proficiency2. Independence 3. Due professional care

3 Standards of Field Work 4. Planning and supervision5. Internal controls6. Competent evidential matter


29

10 Auditing Standards

4 Standards of Reporting 1. Compliance with GAAP2. GAAP consistency 3. Disclosures4. Opinion or not


30

How We Got Here

1. Auditing procedures were ‘unofficial’ through 1930’s2. 1930’s Statement on Auditing Procedures (SAPs)3. 1963 SAPs codified into SAP 334. 1972 Auditing Standards Executive Committee SAS 15. AudSec replaced by Auditing Standards Board (ASB)6. 1972 - 1995 ASB only authoritative statement issuer7. Broad pronouncements, not detailed procedures


31

How We Got Here

What do all these laws have in common………..1. Private Securities Litigation Act of 1995 2. FDIC Improvement Act of 19913. Sarbanes-Oxley 20024. They permit SEC, FDIC, PCAOB to ______________5. Enron, WorldCom, etc., exposed weaknesses in

self-regulation resulted in PCAOB setting audit standards

6. 1997 SEC + ASB = Independence Standards Board7. Broad pronouncements gave way to specific

guidance (SAS 99)

set auditing standards


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At the END of EVERY Auditing Standard

Note: Statements on Auditing Standards are issued by the Auditing Standards Board, the senior technical body of the Institute designated to issue pronouncements on auditing matters. Rule 202, Compliance With Standards, of the Institute’s Code of Professional Conduct requires compliance with these standards in an audit of a non-issuer.

This requirement to comply may be the most important paragraph in an auditing standard. If so, where else could it be located _________________.

AT THE BEGINNING


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SAS 102: Defining Professional Requirements In Statements On Auditing Standards

1. MUST = Unconditional requirements – The auditor or practitioner is required to comply with an unconditional requirement in all cases in which the circumstances exist to which the unconditional requirement applies.

2. SHOULD =Presumptively mandatory requirements – The auditor or practitioner is also required to comply with a presumptively mandatory requirement in all cases in which the circumstances exist to which the presumptively mandatory requirement applies; however, in rare circumstances the auditor or practitioner may depart from a presumptively mandatory requirement provided he or she documents the justification for departure and how alternative procedures performed in the circumstances were sufficient to achieve the objectives of the presumptively mandatory requirement.

3. Effective upon issuance December 2005

Tip _____________________________________________Review EVERY audit

program for compliance.


34

SAS 1 Training and Proficiency

The first general standard is:

The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.


35

SAS 1 Training and Proficiency

Danger How do you comply???

Cannot meet the requirements without proper education and experience.

MUST undergo training adequate to meet the requirements of a professional.

MUST study, understand and apply new pronouncements.

Ability to consider objectively and exercise independent judgment.


36

SAS 1 Independence

The second general standard is:

In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors. _________

wrongdoing.


37

SAS 1 Independence


MUST be without bias…for dependability of his findings… not a prosecutor but judicial impartiality and an obligation for fairness on those who rely.

To be independent, MUST be intellectually honest.

To be recognized as independent MUST be free from any obligation to or interest in client, management or owners.


38

SAS 1 Independence


Should avoid situations that may lead outsiders to doubt their independence.

Code of Conduct has precepts to guard against presumption of loss of independence.

Should administer practice within the spirit of the precepts.


39

Conflicts in Audits

Want to trust MUST be skeptical

Keep happy client

Be persistent

It’s an error It’s fraudMake a profit More evidenceWho pays ?????


40

SAS 1 Independence Lawsuit

Facts Construction company. President resigned. Cash flow. Auditor gave OK for very low bids and to overestimate % of completion because mgt wanted to improve FS. Issued clean opinion.

Issues Client bankrupt. 2 banks and 2 bonding companies sued claiming firm not independent thus motivated to allow client to manipulate the FS.

Resolution

Settled for more $2 million.

Thoughts Extreme but clients go ‘opinion shopping’. Subordinate your judgment and your future is tied to the client’s. Such a client will sacrifice the firm. Resolve and document all independence issues BEFORE starting.


41

2006 Pulitzer Prizes in Journalism

WSJ Stock-option scandals

Birmingham News

Exposed cronyism and corruption in Alabama’s two-year college system.

Miami Herald

Waste, favoritism and lack of oversight at Miami housing agency

WSJ Adverse impact of China’s booming capitalism on conditions ranging from inequality and pollution.

NY Daily News

Editorials on behalf of ailing ground zero workers.

Compliance Tip: Would the media uncover/write these stories if they were paid by the subject entity? Y N


42

SAS 1 Independence Case

Mr. XXXXX, CPA, caused his firm not to be independent in an audit of a client in that he obtained a home equity loan from a subsidiary of this audit client while he was participating on the audit engagement of another subsidiary of the audit client.

AgreementWilliam XXXXX agrees as follows:• To waive his rights to a hearing.• To neither admit nor deny the above specified

charges. • To comply immediately with professional

standards. • To a six month suspension from the AICPA and

MNCPA.• To complete “Professional Ethics: The AICPA’s

Comprehensive Course” with a grade of 90% or more.


43

SAS 1 Independence Compliance Tips

1. It’s nearly impossible to be truly objective/unbiased when you have a vested interest in the outcome

2. Examples……Kids…….Driving3. What vested interest do auditors have

___________4. List a control you have to assure

independence _______________________________

GETTING PAID

Do you have a disclosure statement?


44

SAS 45 Related Parties

Procedures that should be considered……to identify related party relationships and transactions and to satisfy himself concerning the required financial statement accounting and disclosure. The procedures set forth should not be considered all-inclusive. Also, not all of them may be required in every audit.

Accounting usually same as for non-RPTs but be aware substance may be substantially different than the legal form so focus is on disclosure.


45

RPT Examples in SAS 45

1. Borrowing or lending on terms significantly different than market conditions warrant.

2. Selling real estate at a price significantly different than it’s appraised value.

3. Exchanging property for similar property in a non-monetary transaction.

4. Making loans with no scheduled terms for when or how the funds will be repaid.


46

SAS 45 Audit Procedures

1. SHOULD be aware of the possible existence of RPT

2. If relationship is material, requires disclosure even if _______ transactions (FASB 57)

3. SHOULD understand Management responsibilities Relationship of each entity component Controls and business purpose Business style and structure are

deliberately used to obscure RPTs

no

SAS 45 .04 - .05


47

SAS 45 Audit Procedures


Lack of working capital or credit

Need for favorable earnings

Overly optimistic earnings forecast

Single or few products, customers, etc.

Declining industry

Excess capacity

Significant litigation (esp. owner/mgt)

Significant obsolescence danger


48

SAS 45 Determining Existence

1. SHOULD place emphasis on testing material transactions with known RPTs

2. Common RPTs….1. Parent-subsidiary 2. Investor-investee

SAS 45 .07


49

SAS 45 Look for Unknown RPs


Company procedures to ID/acct for

Request names and transactions

SEC and other filings

Pension and other trusts

Review stockholder lists

Review prior year’s work papers

Predecessor, principal or other auditors

Review material investmentsSAS 45 .07


50

SAS 45 Identify RP Transactions


Provide staff known RPs so they can??

Board/committee minutes

Conflict-of-interest statements

Extent/nature of transactions with customers/suppliers/borrowers/lenders

SAS 45 .08


51

SAS 45 Identify RP Transactions


Transactions not properly accounted

Large/unusual/nonrecurring transactions or balances near _______

Law firm invoices

Loans receivable and payable

EORP

SAS 45 .08


52

SAS 45 Examining RP Transactions


Obtain and evaluate sufficient competent evidential matter and should extend beyond inquiry of management.

Confirm with and inspect evidence held by _____________________

Intermediaries

Public information

Collectibility of balances

other parties

SAS 45 .09


53

Related Party Audit Failure

Facts Audits of 3 years of rapidly growing construction company, cash flow, bankruptcy, collected on completion bonds. Controller took undisclosed loans. Firm didn’t train staff to search for RPTs.

Issues Sued for $2 million. Bank and bond companyextended credit and bond in reliance on AFS.

Resolution

$ ____________

Thoughts 3 critical failures caused firm to settle1. Recognize high-risk client with potent

plaintiffs2. Design audit program to detect undisclosed

loans3. Supervise inexperienced staff

1 million


54

SAS 45 Related Party Thoughts

1. Written representations before beginning field work

2. WHY _____________________________________3. If undisclosed material RPTs are discovered ask

What else hasn’t been ______________ What are the odds this/these is/are __________

Higher risk for management RPT assertions Extreme risk should you audit the entity on

the ___________________

Test management integrity

disclosedonly one(s)

other side of RPT


55

SAS 54

Illegal Acts by Clients


56

SAS 54 Where It Came From

1. Watergate investigations illegal ___________2. Which uncovered illegal payments to ____________3. Commission on Auditor’s Responsibilities (Cohen

Commission) resulted in SAS 17 in ______4. SAS 17 introduced……..

Auditors experts on some illegal acts _______ In planning/conducting engagement, auditors

consider illegal acts that have a direct and material effect on the financial statements

Did not require affirmative detection procedures

political contributionsgovernment officials

1977

tax evasion


57

SAS 54 Definitions

1. Violations of laws or governmental regulations2. Two types for audits

Direct and material effect on financial statements

Other illegal acts that are indirect/operational3. By the entity/management/employees for the

entity4. Does NOT include personal misconduct unrelated

to their business activitiesIf someone will cheat on his/her spouse, what makes you think they won’t _______________

COOK THE BOOKS


58

SAS 54 Judgment and AFS

1. Normally beyond auditor’s expertise but may recognize acts that may be illegal but ask an ______

2. More remote act is from AFS less likely auditor will become aware or recognize

3. Act’s legality relative to the audit, not legality per se4. OTHER illegal acts have indirect effect: securities,

OSHA, FDA, EPA, EEOC, price-fixing, antitrust5. Indirect effect usually disclose contingent liability6. Usually unaware unless informed or see evidence

expert


59

SAS 54 OTHER Illegal Acts

1. SHOULD be aware of the possibility that such OTHER illegal acts may have occurred

2. Auditor is responsible when Aware of specific information Material indirect effect SHOULD determine if illegal act has

occurred 3. GAAS audit provides no assurance other

illegal acts will be detected or contingent liability disclosed

SAS 54 .07


60

SAS 54 Where to Look

1. GAAS procedures that might indicate illegal acts…. reading minutes, ask management and legal counsel, claims and assessments, testing transactions and balances, and get rep letter.No further work unless have specific information.

Ignoring an act or letting client convince you that an act isn’t _________.

illegal

SAS 54 .08


61

SAS 54 Specific Information

1. Unauthorized or improperly recorded transactions or not timely recorded

2. Investigation, enforcement, or unusual payments3. Violations in regulatory reports made available 4. Large or multiple small payments for unspecified

work, usually consultants/affiliates/employees5. Excessive commissions or fees6. Large cash payments or cashiers checks to bearer7. Payments to gov’t or regulatory employees 8. Fail to pay or file tax returns or regulatory reports

SAS 54 .09


62

SAS 54 Response

1. Inquire at a level ________ those involved2. Not satisfied SHOULD

Consult client’s legal counsel (arranged by client) or other specialists

3. Additional procedures Are supporting docs ___________ with acct

records Properly authorized Confirm with other partyWhat are the odds that this illegal

transaction/event is the ___________________________?

above

consistent

only one SAS 54 .10


63

SAS 54 AFS Effect

1. Illegal act has or is likely to have occurred2. SHOULD consider quantitative and ________ effect3. “an illegal payment of an otherwise immaterial

amount could be material if there is a reasonable possibility that it could lead to a material contingent liability or material loss of revenue” SAS 47

4. SHOULD consider effect on amounts in AFS5. SHOULD evaluate adequacy of disclosure

Material revenue or relationship from illegal acts

qualitative

SAS 54 .13 - .15


64

SAS 54 Communication

1. SHOULD consider reliability of mgt representations

2. Communications with audit committee SHOULD determine AC or equivalent is

informed Not clearly inconsequential acts If senior mgt is involved go directly to AC

SHOULD document oral presentation

SAS 54 .17


65

SAS 54 Effect on Opinion

1. Material and not properly accounted for or disclosed SHOULD issue __________ or ___________

2. If client prevents obtaining sufficient competent evidence SHOULD issue __________

3. If client refuses to accept the opinion, auditor SHOULD __________

4. What are some of the pressures that make the above responses difficult _________________?

qualified adverse

disclaimer

withdraw

Getting paid, friends, long-time clientSAS 54 .18 - .21


66

SAS 54 Other Issues….

1. May conclude withdrawal is necessary… even when the illegal act is not material Won’t fix the problem Management integrity Continuing association

2. Disclosure to outside parties prohibited except… Form 8-K Successor auditor Subpoena Government funding requirement

Talk to YOUR__________attorney


67

SAS 54 Common Illegal Act

1. NY state employers cheat workers’ compensation estimated $500 million to $1 billion per _________

2. 15 to 20% of premiums, Fiscal Policy Institute 3. 20% estimated by NY State Assn of Ins Agents4. Accepted practice due to lack of _______________5. Underreport number of _______________________6. $389 billion reported to pay unemployment taxes

but only $311 billion reported for workers’ comp7. Do you have an audit procedure to determine if

client’s are cheating workers’ comp system? Y N

enforcement


68

SAS 56

Analytical ProceduresJanuary 1, 1989


69

SAS 56 BIG Picture

1. Requires analytical procedures in planning and overall review stages of all audits

2. Study plausible relationships among both financial and nonfinancial data

3. Relationships are expected to exist and continue unless conditions change

4. Requires knowledge of client and industry

SAS 56 .01 - .03


70

SAS 56 Understanding the Client

What business is Xerox in ______________ 1970 The COPIER Company is ______________ 1995 The DOCUMENT Company is ______________ Early 2000s Xerox nearly went bankrupt WHY ________ which is a __________________ What business is Xerox in ______________________

Auditing Tip: Simply adding up the numbers does NOT mean you _______________ the business.

COPIER BUSINESSINTERNAL

EXTERNAL

INFORMATION DISTRIBUTION

Disruptive Technology

Internet

UNDERSTAND


71

Do You Understand Your Client’s Business?

Do you know what business your client is in?Yes No

What business is your favorite client in___________? What are the 3 major reasons your client’s

customers do business with your client instead of a competitor?1._____________________________2. _____________________________3. _____________________________


72

SAS 56 Analytic Procedures Are Used For

a) Planning the nature, timing and extent of other audit procedures

b) Substitutive test to obtain evidential matter about assertions for account balances or classes of transactions

c) Overall review in the final review stage SHOULD be applied to some extent in a) and c)

for ALL audits

SAS 56 .04


73

SAS 56 Analytic Procedures

1. Compare recorded amounts, or ratios therefrom, to expectations developed by identifying and using plausible relationships, for example

Prior periods Anticipated results Intraperiod relationships Industry information, such as gross margin Nonfinancial information

SAS 56 .05


74

SAS 56 Anticipated Results The Hockey StickLumber Yard3-year average sales$22 million

Sales at 12/15$18 million

Jan Dec


75

SAS 56 Gross Margin

1. Mark Morze, CFO, ZZZZ Best Carpet Cleaning2. Pepperdine University3. Toastmaster Speaking Champion4. Fraud: Ex-Con Tells All Part II5. 10,000 phony documents6. $50 million revenue, 86% was _________ 7. “If you were my auditor, ____________________.”8. Reported 50 to 60% gross margins, but the

industry average was _____%.

fake

8½

what’s wrong with this document???”


76

SAS 56 Industry Knowledge

Capitol Bank Bldg


77

SAS 56 Gross Margin

1. Fraud 5+ years2. Sole practitioner, local firm, Big-83. E&W WHY ___________________________4. E&W would be ________________________5. Failure to understand cost E&W __________

6. Next time you are asked to propose on a client that you know little or nothing about the industry, ask ________________________________________

the easiest to foolknew the least about the industry

WHY are they asking us?

$3 million


78

SAS 56 Failure

Facts Small toy mfgr. Clean opinion. Next firm found accts payable understated $400k. Sued for $200k, amount of tax overpaid.

Issues Client claimed GAAS failure.

Resolution

Settled for _________________

Thoughts Firm didn’t compare accts payable _______________, which should have been done during __________

$125,000year-to-year

planning


79

SAS 56 Trouble

If a misstatement is suspected, the failure to apply analytical procedures and subsequent nondisclosure may be so damaging the client made allege gross negligence and intentional misconduct resulting in ____________________________.

Accounting, Auditing and Financial Malpractice, Section 17.41

treble punitive damages.


80

SAS 56 Success

Facts New large privately-owned bank client. Loan portfolio doubled but income __________________________. Senior loan officer approved and __________ money.Expanded procedures. Discovered he approved loans to friends, which were in default and _____________.

Issues Client alleged negligence, gross negligence, intentional misconduct, and fraud suing for $1.5MM.

Resolution

Jury found _______________________.

Thoughts Analytic procedures during _____________ violated expectations. Additional procedures uncovered the fraud. What was the expectation ________________.

stayed about the samedisbursed

uncollectible

no liability

Change in loan portfolio = change in portfolio income.

planning


81

SAS 57

Auditing AccountingEstimates


82

SAS 57

1. Estimate is an approximation of a financial statement element, item, or account

2. Management is responsible for making the estimate

3. Auditor is responsible for the reasonableness

4. Even competent management using relevant and reliable data will be biased because they have a vested interest in the _____________________. When planning and performing procedures, auditor SHOULD apply professional ________________.

outcome

skepticism


83

SAS 57

1. Risk of material misstatement usually varies according to complexity and subjectivity of the process, availability and reliability of the data, number and significance of the assumptions and degree of uncertainty of the assumptions.

Compliance Tip: Determine if estimate is consistent with operational plans by looking at client’s _______ and compare prior estimates to ________.

budgetresults

SAS 57 .05 last para, .06 e + f


84

SAS 57 Circumstances

1. Are all material estimates in the AFS…….. Method of conducting business New accounting pronouncements Circumstances of the industry Other external factors

2. How do you stay informed about the client’s industry and external factors so you have a reasonable chance of knowing when a change should take place? _________________________Read at least one industry trade publication.

SAS 57 .08


85

SAS 57 Reasonableness

1. SHOULD consider client’s past estimates and auditor’s experience in the industry

2. SHOULD use one or more of…… Review and test management’s process Develop an independent expectation Review subsequent events or transactions

If you can’t develop an independent estimate, then on what basis do you know enough to judge the reasonableness of _________________________?

management’s estimateSAS 57 .09


86

SAS 59

The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern


87

SAS 59 Responsibility

1. Continuation is assumed in the absence of significant information to the contrary

2. Responsibility to evaluate whether there is substantial doubt as to a going concern for a reasonable period, not to exceed ____________

3. Evaluation of relevant conditions and events existing at or prior to completion of the field work

4. Based on standard audit procedures

one year

SAS 59 .01 - .02


88


1. SHOULD evaluate in the following manner… Did procedures identify a substantial doubt

Additional information If substantial doubt SHOULD

Obtain management plans to mitigate the event or condition and

Assess if plans will work If still substantial doubt SHOULD

Evaluate disclosure Include explanatory paragraph

SAS 59 .03


89


1. Not responsible for predicting future conditions or events

2. Ceasing to exist after receiving a clean opinion does not indicate inadequate performance

3. Absence of going concern does not provide assurance that entity is a going concern

SAS 59 .04


90

SAS 59 Conditions and Events


Negative trends: operating losses, WC shortage, adverse key ratios

Financial difficulties: defaults, trade credit, statutory capital shortage, seeking financing

Internal matters: labor, one or few projects, uneconomic long-term commitments, revise operations

External matters: lawsuits, regulations, franchise, license, patent, customer, supplier, insurance

SAS 59 .06


91

SAS 59 Management Plans

1. If doubtful about going concern, evaluate management plans and determine if they will mitigate adverse effects and whether the plans can be effectively implemented, including Dispose of assets Borrow or restructure debt Reduce or delay expenditures Increase equity

SAS 59 .07


92

SAS 59 Management Plans

2. Obtain evidence for particularly significant elements Financing or asset disposal

3. Is there support for the critical elements of the plan or is it just __________________________ giving attention to assumptions that are…. Material to financial information Especially sensitive or subject to change Inconsistent with historical trends

management talk

SAS 59 .08 - .09


93

SAS 59 Effects on Opinion

1. If still doubtful about going concern must include explanatory paragraph such as “substantial doubt about its ability to continue as a going concern” or similar wording that includes “substantial doubt” and “going concern” such as……..

2. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note X to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note X. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

SAS 59 .12 - .13


94

SAS 59 Effects on Opinion

1. If disclosures are inadequate disclaim or qualified

2. Current period going concern does not mean existed in prior period and should not affect that opinion

3. If prior period going concern doubt has been removed, the paragraph should not repeated

SAS 59 .14 - .16


95

SAS 59 Documentation

Auditor SHOULD document all of the following…….

a. Conditions or events that caused the doubtb. Elements of plan to rectify the adverse effectsc. Audit procedures performed and evidence

obtained

SAS 59 .17


96

SAS 59 Documentation

Auditor SHOULD document all of the following…….d. Conclusion whether doubt is alleviated

If doubt remains document effects on AFS and disclosure

If alleviated document need for disclosure of the conditions and events that caused the doubt

e. Conclusion whether to include explanatory paragraph and if client disclosure is inadequate conclusion to issue a qualified or adverse opinionSAS 59 .17


97

Practical Going-Concern

1. Clean opinion covers not just the pastbut __________________

2. Says ‘everything will be fine’ for next __________3. How many of you look at next year’s __________

4. Going concern situations are very risky. If you are dealing with management plans, seriously consider engaging _______________________________.

12 monthsfuture

budget

turnaround and operational experts


98

MiniScribe Corporation


99


1. Business2. Market share3. Fortune 5004. IPO5. IBM

Stock Price 1983 - 1990

Source: Accounting Shenanigans at MiniScribe1983 1984 1985 1986 1987 1988 1989 1990

0

5

10

15

20

25High

Low


100


1. Hambrecht & Quist2. Reorganization3. Incentives and bonuses4. New products5. Employees


101


1. Plants2. Capacity exceeds demand3. Cost per megabyte4. Market growth5. New market entrants


102

Mini-Scribe Financial Ratios

1986 1985%

Change

Sales $184.8 $113.9Gross profit $46.9 $2.5

25.4% 2.2%

Sales $184.8 $113.9 62.2%Inventory $45.1 $22.5 100.4%

FGI $8.0 $3.5 128.6%

Sales $184.8 $113.9 62.2%A/R $39.77 $16.04 147.9%

Allowance .73% .75% -2.7%


103

MiniScribe - Creating Inventory

1. Inventory workpapers2. Fictitious inventory in transit3. Receiving raw materials4. Fictitious shipping program __________________5. Scrap inventory6. Inventory tickets7. Ship ahead

CookBook


104

MiniScribe Risks

1. Loan covenant violation2. Related party transactions3. Dash meetings4. Common knowledge5. Debt reserves


105

MiniScribe Opinions

1. Overstated net income1. 1986 $4.5 million (37%)2. 1987 $22 million (244.5%)3. 1988 2nd+3rd quarters $31.6 million

2. What kind of opinions did MiniScribe get _________

3. What kind should it have gotten __________________________________________________________

adverse, something other than unqualified going concern,

clean


106

SAS 67

The Confirmation Process


107

SAS 67 The Confirmation Process

“When evidential matter can be obtained from independent sources outside an entity, it provides greater assurance of reliability for the purposes of an independent audit than that secured solely within the entity.“ SAS 67, ¶ .06

Make sure you’re really confirming with an independent source.

SAS 67


108

SAS 67 Audit Risk

Obtaining and evaluating a direct communication from a third party to test management assertions about an item in the AFS

1. Select items2. Design the request3. Send the request to proper third party4. Obtain a response5. Evaluate the information, including reliability

SAS 67 .04


109

SAS 67 Risk v. Confirmations


Greater risk means greater need for substantive tests (eg, confirmations)

Unusual or complex transactions Confirm with ____________

Confirmation isn’t sufficient (eg, AR)

Perform sales ___________

Low existence risk of cash in bank and bank usually doesn’t reply

Look at bank statements provided by ____________

3rd party

cutoff

client

Because the confirmation process is consistent from year to year, it’s easy to _________________.

manipulateSAS 67 .08


110

Sahlen & Associates

1. Harold Sahlen starts company in 19802. Rent-a-guard3. Small IPO in 19844. Moves company5. Competition6. Undercover investigations7. A/R confirmations8. Public debt offering9. SEC review10. Business trips

Advice ________________________________NEVER Underestimate

Your Opponent


111

CF Foods

Sales in Millions

020406080

100120140160

94 95 96 97 98


112

CF Foods

1. David Burry GP managed the private wholesale candy distribution company

2. Promised investors 18-30% returns using his candy buying expertise attracting $25 million

3. 2 types of sales: Sales One and Sales Two4. Sales One completely managed by Burry

himself5. Sales Two was real sales, employees, and

inventory


113

CF Foods

1. Recorded hundreds of fake transactions in computer

2. Created fake supporting documents using Sales Two making copies for auditors

3. Gave substantial amounts to churches WHY ______4. CF lenders sued churches which had to __________5. Auditors sent confirmations6. What % of 1998 sales were real _________7. Burry got the confirmations back signed and

returned them to auditors HOW ___________

give money back

3

credibility


114

Parmalat Finanziaria

1. Largest corporate fraud in history __________2. Nov 2003 private offering to repay $187 million

bonds coming due, D&T lead and GT subsidiaries3. Dec 2003 Parmalat had $4.9 Billion cash balance

(40% of total assets) B of A account 4. Grant Thornton SpA sent confirmation5. March 2003 GT got a reply6. Parmalat sued D&T and GT for _______________7. D&T settled for _____________ but GT has not

Fraud lesson: No one asked, if it had $4 Billion in a checking account, why the company ____________. needed $187 million

$10 Billion$149 Million

$18 Billion


115

SAS 67

ManagementRepresentations


116

SAS 67 Overview

1. Required to obtain WRITTEN representations2. Representations are audit evidence but are

NOT substitute for other procedures3. Confirm continuing appropriateness and reduce

misunderstandings4. Procedures + written representations, eg, even

if other procedures indicate all related party issues are properly disclosed SHOULD obtain written representations mgt knows of no others

5. Representations that contradict other evidence

SAS 67 .01 - .04


117

SAS 67 Reps SHOULD Include

Financial Statementsa. AFS are management’s responsibilityb. Management believes AFS are fairly presented

Completeness of Informationc. All financial records and data are availabled. All minutes of meetingse. Regulatory agency communicationsf. Absence of unrecorded transactions

SAS 67 .06


118


Recognition, Measurement, and Disclosureg. Passed adjustments are immaterial and a list is to

be included or attachedh. Responsibility for preventing and detecting fraudi. Actual or suspected fraud involving management,

employees or othersj. Allegations or suspected fraud in communicationsk. Carrying value or classification of assets or

liabilitiesl. Transactions and amounts from or to RPTs

SAS 67 .06


119


1. Written or oral guarantees2. Significant estimates and material concentrations3. Actual or possible violations of laws or

regulations4. Probable unasserted claims or assessments per

client’s attorney5. Other liabilities and gain or loss contingencies6. Title to assets, liens or encumbrances7. Compliance with contracts affecting the AFS 8. Subsequent eventsSAS 67 .06


120

SAS 67 Reps SHOULD Be Tailored

To include business or industry information1. Interim information2. New accounting principle3. Change in principles4. Going concern conditions and management’s

plans5. Specific significant impaired assets6. Variable interest in another entity7. Work of a specialistSAS 67 .07


121

SAS 99

Consideration

of Fraud in a Financial Statement Audit


122

Fraud Auditing Standards

1973 1977 1989 1997 2002

SAS 1NO

RESPONSIBILITY

SAS 16NO

ASSURANCE

SAS 53 SAS 82 SAS 99

REASONABLE ASSURANCE

Number of Pages 18 45 75

Increasing details on how toachieve “reasonable assurance.”

ZZZZ Best 1987


123

SAS 99 Made Simple

SAS 99 requires you to audit the

BUSINESS

Not justthe books


124

The Triangle of Fraud

NeedTriggerTwo kinds of need:1. Direct2. Indirect

OpportunityLow probabilityof getting caught

RationalizationAction fits inside code ofconduct


125

Situational Fraud

5-10%

Never

5-10%

Always

80-90%

SituationalFraud or

Embezzlement


126

SAS 99: Aligns Opinion and GAAS

“the financial statements

fairly present”

The auditor has a responsibility to plan and perform the audit to

obtain reasonable assurance about whether the financial statements are

free of material misstatement, whether caused by error or fraud.”

POSITIVE, AFFIRMATIVE, DUTY TO DETECT FRAUD

+

=


127

Engagement Letters

WRONG: “An audit is not designed and cannot be relied upon to detect defalcations and similar irregularities.”

SUGGESTED: “The objective of our audit will be to express an opinion on the company’s financial statements that provides reasonable assurance that those statements are free of material misstatement, whether caused by error or fraud. However, an audit cannot provide absolute assurance and a material misstatement may remain undetected. Also, an audit is not designed and cannot be relied upon to detect error or fraud that is immaterial to the financial statements.”

The Annual Audit Tune-Up, The CPA Journal, December 1997, p. 24


128

sitll raed it wouthit porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe.

LESSON: _________________________

Your Brain Adjusts

Aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae.

The rset can be a total mses and you can

We See What We Expect to See


129

Management IS Responsible

Paragraph 4……………"Management is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, initiate, record, process, and report transactions (as well as events and conditions) consistent with management's assertions embodied in the financial statements."

Show this to your client and banker and anyone else who will

use the financial statements.

__________________________________________________________________________________________


130

Management IS Responsible

Auditor says:Improve controlsSegregate dutiesCode of conductAssure compliance

Client says:Cost too muchWe’ll do it laterI trust my peopleNever had a problem


131

‘Trusted’ worker stole $1 million


132

Professional Skepticism

1. MUST be unbiased2. Requires a questioning mind and a

critical assessment of audit evidence3. Possibility of material fraud is ALWAYS

present4. Can NOT be satisfied with less than

persuasive evidence5. Can NOT rely on client’s past honesty,

integrity, experience6. As a practical matter, what

management tells you is NOT audit evidence


133

Revenue and Management Override

41 Revenue recognition is ALWAYS a fraud risk

42 Management override is ALWAYS a fraud risk Adjusting journal entries from unusual sources

Accounting estimatesUnusual significant transactions

51 “it is unlikely that audit risk can be reduced to an appropriately low level by performing only tests of controls”


134

1 2 3 4 5

U. Penn Doctors

1. Teaching physicians required to be present during a procedure

2. Records did not justify medical necessity3. Evaluation and management codes all

upgraded to levels 4 and 5


135

13th S&L

1. First audit step

2. The embezzlement

3. The trial

4. Advice Consistency makes fraud easyDo something DIFFERENT


136

PCAOB Inspection FindingsRelease 2007-001

OBSERVATIONS ON AUDITORS'IMPLEMENTATION OF PCAOB STANDARDSRELATING TO AUDITORS' RESPONSIBILITIESWITH RESPECT TO FRAUD


137

PCAOB Inspection Findings

1. Auditor's Overall Approach to the Detection of Financial Fraud

2. Brainstorming Sessions and Fraud-Related Inquiries

3. Auditor's Response to Fraud Risk Factors4. Financial Statement Misstatements5. Risk of Management Override of Controls6. Other Areas to Improve Fraud Detection

Release 2007-001


138

Auditor's Overall Approach to the Detection of Financial Fraud

1. Check off standard audit program2. Senior auditors cannot properly review 3. No documentation procedures performed4. Failure to expand procedures5. Mechanical auditing

Release 2007-001


139

Brainstorming Sessions and Response to Risk Factors

Auditor SHOULD set "aside any prior beliefs the audit team members may have that management is honest and has integrity.“

1. No brainstorming sessions 2. Brainstorming sessions after planning and

substantive _______________________3. Key members of team did not ___________4. Not making required _______________5. Failure to respond to identified fraud risk

factors

Release 2007-001

attend

inquiries


140

Financial Statement Misstatements

Indications of fraud my mean that small amounts are material

1. Failure to calculate planning materiality and/or adjustment thresholds

2. Did not post proposed adjustments 3. Did not scrutinize significant last minute

adjustments that offset adjustments by auditors

Release 2007-001


141

Risk of Management Override

1. Journal entries override Did not assure completeness of all JEs Excluded low amount entries

2. Accounting estimates override Failed to test or document tests of

assumptions Didn’t recognize all differences increased

______

Release 2007-001

income


142

Other Areas to Improve Fraud Detection

1. Numerous deficiencies in analytic procedures Failure to test underlying data Failure to disaggregate data When used as substantive test failure to

establish expectations or investigate differences

Failed to corroborate management’s explanation

2. Confirmation procedures Failure to obtain alternative evidence when

positive responses were not received

Release 2007-001


143

SAS 103: Audit Documentation

Issued Dec 2005 Effective for periods ending on or after Dec 15,

2006 Supersedes SAS 96 Prepare audit documentation in sufficient details to

provide an experienced auditor with NO previous connection to the audit a clear understanding of the work performed, the evidence obtained and its source, and the conclusions reached

Guidance on matter to document and document retention


144


Oral explanations on their own do NOT represent sufficient support for the work the auditor performed or conclusions reached May be used to clarify or explain

documentation Document audit evidence that is contradictory

or inconsistent with the final conclusions and how the auditor addressed the contradiction or inconsistency


145


Assemble the final audit engagement file within 60 (calendar) days following the report release date

After 60 days No deletion or discard of existing

documentation Appropriately document subsequent

additions Minimum file retention of five years from

report release date


146

SAS 104 – 111: Risk Assessment Standards

104 Amendment to SAS 1, Due Professional Care in the Performance of Work

105 Amendment to SAS 95, GAAS

106 Audit Evidence

107 Audit Risk and Materiality in Conducting an Audit

108 Planning and Supervision

109 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement

110 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained

111 Amendment to SAS 39, Audit Sampling


147

Risk Assessment Standards Objectives

Effective for periods beginning December 15, 2006 More in-depth understanding of the entity and its

environment, including its internal control, to identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them

More rigorous assessment of the risks of material misstatement of the financial statements

Improved linkage between the assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks


148

False Sign-Off

WHY COMMIT ______________________________ WHAT TO SIGN OFF _________________________ PAY AND PROMOTION _______________________ WHY NOT DETECTED ________________________ WHY _____________________________________ HOW TO MINIMIZE __________________________

Come in under budget

Something not expected to changeKeep client and boss happy

Assume the work was done

TRUST

Audit the auditors


149

False Sign-Off Survey Results

Signing off on work when in fact __________________

Sample slice %

% of CPAs who observed False Sign-off 25

Auditing experience last 10 years 27

Auditors with some Big 4 experience 26

Auditors with only Big 4 experience 25

Auditors with only Big 4 in last 10 years 28

it wasn’t done


150

False Sign-Off Survey Results

Sample slice %

What % do you THINK commit false sign off 26

If HAVE detected false sign-off 17

If HAVE NOT detected false sign-off 32

What happened to the person

Personally spoke to person 58

Person was terminated 9


152

What Auditors Do Wrong

10. Don’t “listen” for red flags11. Don’t read industry trade publications12. Haven’t talked to client about fraud13. Don’t graph information14. Audit only what’s there15. No leading or predictive indicators16. Think Accuracy = Truth17. Never get actual bank deposit items


153

Be Careful . . . Be Clear Other than tax compliance claims, a

communications breakdown between CPA and client is at the heart of a significant majority of claims…at least 70 percent.” Ron Klein, JD, CFE, Camico vice-president of claims.

1. Clarify, don’t obscure2. Be a linguistic “straight shooter”3. Counsel clients effectively with language they

understand4. Reader-friendly structure5. Use charts and graphsHow to Be Careful and Still Be Clear, J of A, Jan 2001


154

Malpractice WordingProblem Solution

The effect comes before the cause.

Transpose the cause and effect.

B is due to A. A led to B.

B is caused by A. A caused B.

B was the result of A. A caused B or A led to B.

B can be attributed to A. A led to B.

Use of nouns. Use verb form.

X stated that payment would not be made.

X stated they would not pay.

The inclusion of the reserve, [etc.]… Including the reserve, [etc.]…

Using the passive voice. Use the active voice

The amounts expected to be collected are…

The company expects to collect the amounts of…

http://www.aicpa.org/pubs/jofa/jan2001/danziger.htm


155

Selecting and Retaining Clients

Audit failures are your greatest risk

1. Law firms specialize2. Deep pockets3. Settle if damages > insurance4. Third party suits5. Just complying with GAAP+GAAS not

enough

Client acceptance

1. Screen clients2. Understand the client3. Identify high-risk clients4. Are you qualified

I had a _____ feeling about that client.


156

Selecting and Retaining Clients

Interview client

1. Why client needs an service and for whom2. Deadlines and other services3. Does client understand engagement4. Do you understand client + industry trends5. Why client needs new firm6. Conflicts of interest

Interview 3rd parties

1. Other professionals, attorney and credit sources

2. Business assn, vendors, customers, Google

Contact predecessor accountant

1. Management integrity and disagreements2. Why fired3. RPTs

Public Perceptions in a “Post Enron” World

Results of Jury Research Conducted by CAMICO Mutual Insurance Co.

www.camico.com


1581062tas 08/03

Confidential/Proprietary Information

How closely, if at all, have you followed the news about corporate scandals or wrongdoing?

35%

28%

24%

7%

6%

I followed it very closely

I followed it,but not closely

I sometimes followed it

I rarely followed it

I did not follow it at all


1591062tas 08/03


Have you ever felt that you were misled about the financial health of a company?

Yes 37%

No63%


1601062tas 08/03


Which type of crime poses a greater threat to society,street crime or white collar crime?

Street crime49%

White collar crime51%

161Auditing: 11 Dangerous Standards

Do you tend to believe the things you hear in the news about corporate wrongdoing?

Pre Enron

Yes 46%No

54%

Post Enron

Yes 78%

No 22%


1621062tas 08/03


Who, if anyone, do you blame for the legal and/or ethical problems facing Corporate America today?

70%

68%

62%

58%

55%

53%

42%

40%

34%

CEO

Corporations' senior executives

CFO

Inside lawyers

Board of directors

Inside accountants

External accountants

External lawyers

External consultants

0% 20% 40% 60% 80% 100%


163

Feb. 2001Database February 2001


Accountants should know laws that relate tofinancial matters.

0%4% 7%

67%

22%

Strongly disagree Somewhat disagree Neither Somewhat agree Strongly agree0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


1641062tas 08/03


Over the last few years, has your opinion of accounting firmsthat audit corporations changed?

Yes52%

No48%


1651062tas 08/03


Do you think that accountants have become less ethical, more ethical, or stayed the same in the past five years?

Less ethical38%

Stayed the same49%

More ethical13%


1661062tas 08/03


I do not trust accountants.

33%

24% 22%

13%8%

Strongly disagree Somewhat disagree Neutral Somewhat agree Strongly agree0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


1671062tas 08/03


Do you think that a professional accounting firm would look the other way if a client violated the law in order to maintain its

relationship with the client?

Yes62%

No38%


1681062tas 08/03


Compared to accountants who work for large national accounting firms, do you think that accountants in small firms are less honest,

more honest or about the same in terms of honesty?

Less honest6%

About the same55%

More honest39%


Pre Enron

Post Enron

Pre Enron

Post Enron

Pre Enron

Post Enron

0%

10%

20%

30%

40%

50%

60%

Higher Same Lower

Quality of work of large firms vs. small firms - Pre vs. Post Enron


1701062tas 08/03


A company is ultimately responsible for its financial statement, not the accountant who audits the company.

6% 6% 9%

20%

59%


10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Accountants are responsible for making sure that companies stay honest….

Pre Enron

Post EnronPre Enron

Post Enron

Pre Enron

Post Enron

0%

10%

20%

30%

40%

50%

60%

70%

Disagree Neither Agree


If an Accountant is hired by a company to review financial statements, but not retained to do an audit, would you expect the accountant to uncover fraud?

Pre Enron

Yes 40%

No 60%

Post Enron

Yes 71%

No 29%


1731062tas 08/03


An auditor who works closely with a company's financial statements should easily detect any fraud.

4%12% 10%

29%

45%


10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


1741062tas 08/03


A professional accounting firm that does not catch a company's fraud should pay a severe penalty.

9% 12% 12%

25%

42%


10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


1751062tas 08/03


Do you feel that damage awards in lawsuits are too low, about right, or too high?

11%14%

17% 18% 19%15%

20%

31% 30%

25%21%

23%

69%

55%53%

57%60%

62%

Los Angeles Miami Atlanta New York City New Orleans Seattle0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Too low About right Too high


1761062tas 08/03


While some accountants have done bad things, the entire accounting profession should

not be condemned.

6% 4% 5%

20%

65%


10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Observations

Recent corporate and accounting scandals have hurt the image of CPAsParticipants feel even stronger that CPAs should:

> Police their clients, especially publicly traded companies

> Discover fraud (even without an audit)Significant minority of participants distinguish between smaller and larger CPA firms > Smaller firms seen as more trustworthy and equally or more skilled than large national firms There is a strong sentiment that the entire profession should not be condemned based on the bad acts of a few

Documents

Auditing: Complying with the 11 Most Dangerous Standards Gary Zeune, CPA The Pros & The Cons 10356 Wellington Blvd, Suite D Powell, OH 43065 Phone614-761-8911