The International Auditing and Assurance Standards Board (IAASB) has proposed a significant strengthening of its standard on auditors’ responsibilities relating to fraud. 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.
IAASB chair Tom Seidenstein emphasised that the proposed revisions define the expectations in relation to fraud, delineate more robust procedures, and increase transparency about the auditors’ responsibilities and fraud-related procedures in the auditor’s report.
Seidenstein said: “While many participants in the financial reporting ecosystem, particularly management and those charged with governance, have a role in preventing fraud, our standard focuses on the key role that auditors play. While auditors are not policemen, they can and must play a role in identifying and responding to material misstatements of the financial statements due to fraud and communicating their work to users. This proposed standard is an important step forward.”
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.
- Emphasised 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
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