Bloomfield Hills, Mich. (Sept. 13, 2004) -- A recent revision of standards for accounting review services could put many practitioners at risk, according to an expert on business fraud.
While the revised standard, Statements on Standards for Accounting and Review Services 10, is designed to help accountants improve their professional review, it can pose certain pitfalls, warns Harry Cendrowski, founder of Cendrowski Corporate Advisors.
The revision, issued by the American Institute of CPAs, affects reviews of financial statements ending on or after Dec. 15, 2004, and expands on previous guidelines on analytical procedures and other review procedures.
Most notably, Cendrowski said the new standard requires accountants to make inquiries regarding fraud in a review process and to obtain added input from a client's management regarding fraud. It also includes an implied responsibility for understanding the internal controls for fraud deterrence within the organization.
Cendrowski warns that accountants who aren't prepared to properly judge responses to the inquiries in order to recognize the warning signs of fraud and communicate them to a client company's owners could be exposed to professional liability, whether the company is public or privately held.
"Fraud studies consistently show that strong internal controls are the most important defense against fraud," Cendrowski notes. "Accountants will need to develop a mindset for fraud awareness and deterrence in order to manage the risk associated with the performance of a review."
The risk to accountants is that under the new standard, the accountant could be held responsible for not discovering a fraud. For this reason, Cendrowski warns that accountants need to fully understand the many elements of fraud when providing review services under the new standard.
Cendrowski Corporate Advisors provides consulting services to private, public and nonprofit organizations, including forensic accounting; internal control assessment and fraud deterrence; fraud investigation and remediation; expert witness; fraud deterrence training and education; business valuation; risk assessment; operational review; litigation support; internal audit; business continuity planning; and bankruptcy and fiduciary.
-- WebCPA staff
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