Synopsis

In 1985, the AICPA and four other professional accounting societies sponsored a National Commission on Fraudulent Financial Reporting. The Commission recommended that auditing standards be amended to clarify the auditor’s responsibility for detecting financial fraud. Shortly thereafter, the Auditing Standards Board issued nine new Statements on Auditing Standards (SASs) intended to narrow the “expectation gap” between what financial statement users wanted from auditors and what auditors believed they could reasonably provide. The new SASs sought to enhance audit quality by improving auditors’ procedures for evaluating internal controls, performing analytical procedures, and evaluating accounting estimates. The auditor’s report was also revised to communicate more clearly the procedures performed and the responsibilities of the auditor.

Discussion Questions

1. What did the National Commission on Fraudulent Financial Reporting recommend to combat financial statement fraud?
2. How did SAS No. 53 differ from SAS No. 16?
3. Describe the requirements of SAS Nos. 55 – 57, which were adopted in 1988 to make audits more effective.
4. In what ways did SAS No. 58 change the standard auditor’s report?
5. According to the SEC, what were the most common audit deficiencies from 1987 to 1997?
6. What did SAS No. 82 add to SAS No. 53?

Additional Resources

Report of the National Commission on Fraudulent Financial Reporting (aka Treadway Commission), 1987.