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The International Auditing and Assurance Standards Board (IAASB) has proposed a significant strengthening of its standard on auditors’ responsibilities relating to fraud.
According to the IAASB, 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.
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 scepticism to ensure auditors remain alert to possible fraud and exercise professional scepticism 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.
Additionally, 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.
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.”
