Fred is an enthusiastic young auditor working for a large accounting firm. On his first assignment he discovers that there is a discrepancy between the bank deposit slips and the cash receipt details for the company. On his return to the office, he mentions this to the audit partner. The audit partner tells Fred that it is not worth following up because it is not material — the majority of sales are on credit. Fred does not agree with this and believes that there are some deficiencies in the Auditing Standards if they suggest that he should not follow this matter up further. Fred decides to do some research and finds that a new Standard on fraud (SAS 82) has recently been released in the USA. Based on his research, Fred believes it is a better approach than the UK standard SAS 110. He decides to suggest that the UK standard be amended. Below is a summary of the US Standard Fred found:

Required

(a) If it was found that the fraud was material, what regulatory problems would the audit partner have?

(b) Outline what procedures Fred would follow and what organisations he would need to contact to attempt get these changes (as suggested in SAS 82) made to the UK Auditing Standard on fraud, SAS 110.

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SAS 82 February 1997 The new standard clearly articulates the external auditor's responsibility; that is, 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. The AICPA's Auditing Standards Board has issued the new standard to enhance audi- tor performance and to provide auditors with additional operational guidance on the consideration of material fraud in conducting a financial statement audit. Specifically, the standard describes two types of fraud - fraudulent financial reporting, and misap- propriation of assets that are relevant to the auditor's consideration of fraud in a financial statement audit. - The Standard requires the auditor to specifically assess the risk of material misstate- ment due to fraud on every audit and provides categories of fraud risk factors that the auditor should consider in making that assessment. It provides examples of fraud risk factors that, when present, might indicate the presence of fraud. It also: provides guidance on how the auditor responds to the results of the assessment; provides guidance on the evaluation of test results as they relate to the risk of mate- rial misstatements due to fraud; and requires the auditor to document risk factors identified as present and any related response.