ISA 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

Introduction

International Standard on Auditing 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements is probably one of those standards that got highlighted and massively overhauled after the scandals in business cosmos like Enron. This standard clarifies the responsibilities of management auditors pertaining to fraud and its effects on financial statements and due to this fact it considered one of the important guidelines in auditing profession.

Executive Summary

ISA 240 clarifies that it is management who is responsible to manage fraud. Auditor on the other hand is interested in those fraudulent activities that affect the financial information and ultimately increase audit risk. Auditor is required to carry out audit engagement with an attitude of professional skepticism. To make audit engagement effective discussions among team members, inquiries of personnel involved in the management of the entity and communicating with those charged with governance is important. If fraud is suspected or identified, auditor shall determine its effects on audit engagement. Audit is also required to document fraud suspected or identified and how it was dealt.