ASA 240 - The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report - April 2006
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Conformity with International Standards on Auditing...... 121
Appendix 1: Examples of Fraud Risk Factors
Appendix 2: Examples of Possible Audit Procedures to Address the Assessed Risks of Material Misstatement Due to Fraud
Appendix 3: Examples of Circumstances that may Indicate the Possibility of Fraud
Preface
Reasons for Issuing Auditing Standard ASA 240 The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report
The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 240 The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report due to the requirements of the legislative provisions explained below.
The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.
Main Features
This Auditing Standard:
(a) distinguishes fraud from error and describes the types of fraud relevant to the auditor, that is, misstatements resulting from misappropriation of assets and misstatements resulting from fraudulent financial reporting;
(b) requires the engagement team to maintain an attitude of professional scepticism, recognising the possibility that a material misstatement due to fraud could exist, and to discuss the susceptibility of the entity’s financial report to material misstatement due to fraud;
(c) requires the auditor to:
(i) identify and assess the risks of material misstatement due to fraud at the financial report level and the assertion level;
(ii) evaluate the design of the entity’s related controls 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
(iv) design and perform audit procedures to respond to the risk of management override of controls;
(d) requires written management representations relating to fraud;
(e) requires communication with management and those charged with governance; and
(f) establishes documentation requirements.
Operative Date
This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.
Main changes from AUS 210 (June 2004) The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report
The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 210 (June 2004) The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report, are that in this Auditing Standard:
The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 210 by the word ‘should’.
The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 210 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of the explanatory guidance.
Explanatory guidance relating to the following matters, not contained in AUS 210, is included:
(a) Legislation may require the auditor or a member of the audit team to maintain the confidentiality of information disclosed to the auditor by a person regarding contraventions or possible contraventions of the law. In such circumstances, the auditor or a member of the audit team may be prevented from communicating that information to management or those charged with governance in order to protect the identity of the person who has disclosed confidential information that alleges a breach of the law. Consequently, the auditor may need to consider the implications for the audit engagement (paragraph 102).
AUTHORITY STATEMENT
The Auditing and Assurance Standards Board (AUASB) makes Auditing Standard ASA 240 The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report as set out in paragraphs 1 to 121 and Appendices 1 to 3, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001.
This Auditing Standard is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.
The mandatory requirements of this Auditing Standard are set out in bold-type paragraphs.