ISA 240: The auditors responsibilities relating to fraud in an audit of financial statements
1 WHAT IS FRAUD
1.1 Is an INTENTIONAL act by one or more individuals among management,
those charges with governance, employees or third parties involving the
use of DECEPTION to obtain an UNJUST OR ILLEGAL advantage.
1.1.1 Auditor's main concern is with fraud that causes a MATERIAL MISSTATEMENT in financial statements.
184.108.40.206 FRAUDULENT FINANCIAL REPORTING
220.127.116.11.1 Manipulation, falsification or alteration of
accounting records/supporting documents
18.104.22.168.1.1 Misrepresentation of events, transactions or other information
in the financial statements
22.214.171.124.1.1.1 Intentional misapplication of accounting principles
126.96.36.199 MISAPPROPRIATION OF ASSETS
188.8.131.52.1 Theft of the entity's assets
1.2 ERROR:- caused by a mistake
2 RESPONSIBILITIES WITH REGARD TO FRAUD
2.1 Management and those charged with governance are PRIMARILY responsible for preventing & detecting fraud.
2.1.1 Auditors are responsible for carrying out an audit in accordance with international auditing standards - ISA 240
3 AUDITOR'S APPROACH TO THE POSSIBILITY OF FRAUD
3.1.1 Key responsibility of the auditor is obtaining reasonable assurance
that the financial statements taken as a whole are free from material
misstatement whether caused by fraud or error
184.108.40.206 1) Identify and assess the risks of material misstatement
220.127.116.11.1 2) Obtain sufficient appropriate audit evidence through designing and implementing appropriate responses.
18.104.22.168.1.1 3) Respond appropriately to fraud or suspected fraud identified during the audit.
22.214.171.124.1.1.1 Discussion by members of the engagement team of the susceptibility of the entity's
financial statements to material misstatement due to fraud, including how fraud might
3.2 RISK ASSESSMENT PROCEDURES
3.2.1 Undertake risk assessment procedures as set out in ISA 315 which would
include assessing the risk of fraud
126.96.36.199 Inquiries of managemnt, consideration of when fraud risk factors are
present, consideration of results of analytical procedures,
consideration of any other relevant information
188.8.131.52.1 The size, complexity and ownership
characteristics of the entity have a significant
influence on the consideration of relevant fraud
184.108.40.206.1.1 Examples of fraud risk factors:-
220.127.116.11.1.2 Identify fraud risks
18.104.22.168.1.2.1 Relates this to what could go wrong at a financial statement level.
22.214.171.124.126.96.36.199 Considers likely magnitude of potential misstatement.
3.3 RESPONDING TO ASSESSED RISKS
3.3.1 The auditor shall determine overall responses to address the assessed risks of
material misstatement due to fraud at the financial statement level.
188.8.131.52 Consider the assignment and
supervision of personnel
184.108.40.206 Consider the accounting policies
used by the entity
220.127.116.11 Incorporate an element of unpredictability in the
selection of the nature,timing and extent of audit
18.104.22.168 The auditor shall design and perform further audit procedures whose nature, timing and
extent are responsive to the assessed risks of material misstatement due to fraud at the
4 EVALUATION OF AUDIT EVIDENCE
4.1 Ensure it is consistent and that it achieves its aim of answering the risks of fraud.
4.1.1 Analytical procedures and any misstatements found.
22.214.171.124 Reliability of written representations.
5.1 Has identified a fraud or has obtained information that indicates a fraud may exist.
5.1.1 Shall communicate these matters on a timely basis to the appropriate level of management.
5.1.2 If the auditor has identified or suspects fraud involving management or employees who have significant internal control
126.96.36.199 Shall communicate these matters to those charged with governance
188.8.131.52 May have a statutory duty to report fraudulent behaviour to REGULATORS outside the entity.
6 UNABLE TO CONTINUE
6.1 Consider the need to withdraw from the engagement if he uncovers
EXCEPTIONAL CIRCUMSTANCES with regard to fraud.