International Auditing and Assurance Standards Board (IAASB) Proposes to Strengthen Auditor’s Efforts Related to Fraud

Background:

International Standard on Auditing 240 (Revised) is titled “The Auditor’s Responsibilities Relating to Fraud
in an Audit of Financial Statements.” The standard provides guidance to auditors on their responsibilities
related to fraud during a financial statement audit. It outlines the auditor’s responsibility to identify and
assess the risks of material misstatement due to fraud, as well as the procedures to respond to the
assessed risks.
The purpose of ISA 240 (Revised) is to provide guidance to auditors in planning and performing an
audit in accordance with generally accepted auditing standards.

Main Objectives of ISA 240 are:

• To identify and assess the risks of material misstatement of the financial statements due to fraud.
• To obtain sufficient appropriate audit evidence regarding the assessed risks of material
  misstatement due to fraud, through designing and implementing appropriate responses.
• To respond appropriately to fraud or suspected fraud identified during the audit.

Key Changes in the Proposed Revisions:

The proposed revisions to International Standard on Auditing 240 (Revised), The Auditor’s Responsibilities
Relating to Fraud in an Audit of Financial Statements, include:

• Clarified auditor responsibilities relating to fraud in an audit.
• Emphasized professional skepticism to ensure auditors remain alert to possible fraud and exercise professional skepticism throughout an audit.
• Strengthened identification and assessment of risks of material misstatement due to fraud.
• Clarified response to fraud or suspected fraud identified during the audit.
• Increased ongoing communication with management and those charged with governance about
  fraud.
• Increased transparency about auditors’ responsibilities and fraud-related procedures in the
  auditor’s report.
• Enhanced audit documentation requirements about fraud-related procedures.

Ankit Sawhney, Audit Associate, SW India