IntroductionIntroduction

Introduction

4 The purpose of this Auditing Standard is to establish mandatory requirements and to provide explanatory guidance on the auditor’s responsibility to consider fraud in an audit of a financial report[1] and expand on how the standards and guidance in ASA 315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, and ASA 330 The Auditor’s Procedures in Response to Assessed Risks, are to be applied in relation to the risks of material misstatement due to fraud. The mandatory requirements and explanatory guidance in this Auditing Standard are intended to be integrated into the overall audit process.

5 This Auditing Standard:

• Distinguishes fraud from error and describes the two types of fraud that are relevant to the auditor, that is, misstatements resulting from misappropriation of assets and misstatements resulting from fraudulent financial reporting.
• Describes the respective responsibilities of those charged with governance and the management of the entity for the prevention and detection of fraud.
• Describes the inherent limitations of an audit in the context of fraud, and sets out the responsibilities of the auditor for detecting material misstatements due to fraud.

Under this Auditing Standard:

• The auditor needs to maintain an attitude of professional scepticism recognising the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience with the entity about the honesty and integrity of management and those charged with governance.
• The members of the engagement team need to discuss the susceptibility of the entity’s financial report to material misstatement due to fraud. Under this Auditing Standard the engagement partner needs to consider which matters are to be communicated to members of the engagement team not involved in the discussion.
• The auditor needs to:

(i) perform procedures to obtain information that is used to identify the risks of material misstatement due to fraud;

(ii) identify and assess the risks of material misstatement due to fraud at the financial report level and the assertion level; and for those assessed risks that could result in a material misstatement due to fraud, evaluate the design of the entity’s related controls, including relevant control activities, and to determine whether they have been implemented;

(iii) determine overall responses to address the risks of material misstatement due to fraud at the financial report level and consider the assignment and supervision of personnel; consider the accounting policies used by the entity and incorporate an element of unpredictability in the selection of the nature, timing and extent of the audit procedures to be performed;