ISA 240 Financing

The Auditor’s Responsibilities Relating to Fraud

in an Audit of Financial Statements
(Beginning on or after December 15, 2009)

 Application of ISA 315 (Revised) and ISA 330 in relation to RMM due to fraud
Misstatements in FS can arise from either fraud or error. Fraud vs error? Intentional or unintentional.
TWO TYPES MISSTATEMENTS RELEVANT TO AUDITOR:  reasonable assurance na free fr. MM
1. Misstatements Resulting from fraudulent Reporting Auditor doesn’t make legal determinations
2. Misstatements from misappropriation of assets of whether fraud has actually occurred.
OBJECTIVES OF THE AUDITOR
a. To identify and assess the RMM of FS due to fraud
b. To obtain sufficient appropriate audit evidence regarding MM due to fraud, through designing and
implementing appropriate responses; and
c. To respond appropriately to fraud or suspected fraud identified during the audit.
Fraud risk factors – events or conditions that indicate an incentive or pressure to commit fraud or
opportunity to commit fraud
REQUIREMENTS
 Professional Skepticism
 Discussion among the engagement Team – matters to be communicated to team members not
involved in the discussion
 Risk Assessment Procedures and Related Activities
o Management and Others within the Entity
 Auditor shall make inquiries regarding management’s
a. assessment of RMM in FS
b. process for identifying and responding to the risks of fraud
c. communication to those charged with governance – processes for identifying and
responding to the risks of fraud
d. communication to employees – views on business practices and ethical behavior
 Inquiries to determine whether they [mgt, others within the entity, IA function (for entities
who have)] have knowledge of any actual, suspected or alleged fraud affecting the entity.
o Those Charged with Governance (unless involved in managing the entity)
 Understanding of how they exercise oversight of processes for identifying risks of fraud
 Inquiries to determine whether they have knowledge…
o Unusual or Unexpected Relationships Identified o Other Information
 Evaluate whether it may indicate RMM  Consider if it indicates RMM
o Evaluation of Fraud Risk Factors
 Fraud risk factors may not necessarily indicate existence of fraud but have often been
present in circumstances where frauds have occurred = may indicate RMM due to fraud
 Identification and Assessment of the RMM Due to Fraud
o ISA 315 (Revised): Identify and assess RMM due to fraud at FS level and at assertion level for
classes of transactions, account balances and disclosures.
o Fraud in revenue recognition o RMM due to fraud = significant risks
 Responses to the Assessed RMM Due to Fraud
o Overall Responses
 Inquiries to determine whether they have knowledge…
o Audit Procedures Responsive to Assessed RMM Due to fraud at the Assertion level
 Inquiries to determine whether they have knowledge…
o Audit Procedures Responsive to Risks Related to Management Override of Controls
 Inquiries to determine whether they have knowledge…
 Evaluation of Audit Evidence
o Evaluation of Fraud Risk Factors
 Auditor Unable to Continue Engagement
o Evaluation of Fraud Risk Factors
 Written Representations
o Evaluation of Fraud Risk Factors
 Communications to Management and with Those Charged with Governance
o Evaluation of Fraud Risk Factors
 Communications to Regulatory and Enforcement Authorities
o Evaluation of Fraud Risk Factors
 Documentation
o Evaluation of Fraud Risk Factors
Internal Control

TOC

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Investing