Proposed ISA 240_auditor’s responsibilities relating to fraud

Proposed ISA 240_auditor’s responsibilities relating to fraud

• 16 February 2024
• Audit
• South African Accounting Academy

Recent corporate failures throughout the world have underscored the benefits of clarifying and enhancing the role of auditors in responding to fraud and suspected fraud as a means of enhancing public trust in financial reporting. These proposed revisions significantly strengthen the IAASB’s standard on auditors’ responsibilities related to fraud by defining the expectations about fraud, delineating more robust procedures, and increasing transparency about the auditors’ responsibilities and fraud-related procedures in the auditor’s report.

Key Changes in the Proposed Revisions

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

1. Clarified auditor responsibilities relating to fraud in an audit.

2. Emphasized professional skepticism to ensure auditors remain alert to possible fraud and exercise professional skepticism throughout an audit.

3. It strengthened the identification and assessment of risks of material misstatement due to fraud.

4. Clarified response to fraud or suspected fraud identified during the audit.

5. Increased ongoing communication with management and those charged with governance about fraud.

6. Increased transparency about auditors’ responsibilities and fraud-related procedures in the auditor’s report.

7. Enhanced audit documentation requirements about fraud-related procedures.

Video Series Planned to Facilitate Understanding

During the consultation period, IAASB will release a video series to help stakeholders understand the proposed revisions and their implications for strengthening the financial reporting ecosystem. Stay updated on upcoming events by following the IAASB on LinkedIn and X (formerly Twitter) and registering/subscribing to our mailing list.

How to Provide Feedback

The IAASB invites all stakeholder to submit their comments using the Response Template, designed to facilitate a structured response and streamline feedback collation and analysis.  The Response template can be accessed via https://ifacweb.blob.core.windows.net/publicfiles/2024-02/IAASB-Exposure-Draft-Proposed-ISA-240-Revised-Response-Template.docx 

The deadline for comments is 5 June 2024.

You can access a Mapping Table of key changes proposed at https://ifacweb.blob.core.windows.net/publicfiles/2024-02/IAASB-Public-Interest-Table-Exposure-Draft-ISA-204-Mapping-Key-Changes.pdf 

Click here to download the Exposure Draft ISA 240:

https://ifacweb.blob.core.windows.net/publicfiles/2024-02/IAASB-Exposure-Draft-Proposed-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 and proposed standards (in this case ED ISA 240) 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 know the latest publications and guidance issued by regulators and standard-setting boards, such as the IAASB.

Relevance to Your Clients:

• None

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