IAASB: Newly Revised ISA 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

IAASB: Newly Revised ISA 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

• 14 July 2025
• Audit
• South African Accounting Academy

Summary:

The International Auditing and Assurance Standards Board (IAASB) has released the newly revised International Standard on Auditing (ISA) 240, on the Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. 

Article:

The updated standard responds to global scrutiny and stakeholder concern regarding the auditor’s role in detecting fraud. The revised standard clarifies the auditor’s responsibilities, emphasizes a fraud lens in the auditor’s risk identification and assessment and the appropriate responses to assessed risks, and provides greater transparency in the auditor’s reports of publicly traded entities.

Key Enhancements in ISA 240 (Revised) in the standard incorporates the following elements:

• Clearer Auditor Responsibilities – Strengthens and clarifies what auditors are expected to do when addressing risks relating to fraud.
• Reinforced Professional Skepticism – Introduces new requirements to elevate the consistency and effective practice of professional skepticism across all stages of the audit.
• Sharper Fraud Risk Assessment – Requires a focused “fraud lens” when identifying and addressing risks, with stronger links to related standards.
• More Effective Fraud Responses – Establishes a new section with clearer, enhanced requirements to guide how auditors respond to identified or suspected fraud.
• Improved Transparency and Communication – Emphasizes timely communication with management and those charged with governance, with clearer disclosures in the auditor’s report.

The revisions also align with ISA 570 (Revised 2024), Going Concern, recognizing that fraud and financial distress are often interrelated risks that must be addressed together to bolster corporate transparency and resilience. Refer to our previous Alert dated 23 April 2025

ISA 240 (Revised) becomes effective for audits of financial statements for periods beginning on or after 15 December 2026.

Together with ISA 570 on Going Concern (which was revised in 2024 and issued in April 2025), these standards provide a stronger, more coordinated response to the risks of fraud and financial distress. The forthcoming narrow-scope amendments for listed and public interest entities (PIEs) as a cohesive package will further enhance public trust.

Access the related Basis for conclusions (52 pages) at https://ifacweb.blob.core.windows.net/publicfiles/2025-07/IAASB-ISA-240-Revised-Fraud-Basis-Conclusions.pdf 

Click here to download the 138-page Revised Standard:

https://ifacweb.blob.core.windows.net/publicfiles/2025-07/IAASB-ISA-240-Revised-Fraud.pdf 

Relevance to Auditors, Independent Reviewers & Accountants:

• As an auditor and independent reviewer, you need to comply with International Standards on Auditing and other Assurance Services, and thus you need knowledge of newly revised standards that are approved as well as when they become effective.
• Failure to adhere to ISAs may be interpreted as negligence and you could be held liable.
• Auditors, Independent Reviewers and Accountants should be aware of the latest standards that have been approved by standard-setting boards like the IAASB, when these are published, and when these standards become effective in South Africa – and specifically which new requirements may affect their performance in conducting their engagements.

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