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Turn the raw legal text into a practical explanation grounded in Auditing Standard ASA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report (October 2025).
Relationship of Fraud with Corruption, Bribery and Money Laundering (Ref: Para. 18(a))
Depending on the nature and circumstances of the entity, certain laws, regulations or aspects of relevant ethical requirements dealing with corruption, bribery or money laundering may be relevant to the auditor’s responsibilities to consider laws and regulations in an audit of a financial report in accordance with ASA 250.[40]
Corruption, bribery and money laundering are forms of illegal or unethical acts. Corruption, bribery, and money laundering may be distinct concepts in law or regulation; however, they may also be fraudulent acts, or may be carried out to facilitate or conceal fraud.
Examples: Corruption involving fraud – Management colluded with other competing parties to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process (i.e., bid rigging). The bid rigging included monetary payments by the designated winning bidder to colluding parties using fraudulent consulting contracts for which no actual work took place. Bribery to conceal fraud – Management offered inducements to employees for concealing the misappropriation of assets by management. Money laundering to facilitate fraud – An employee laundered money, to an offshore bank account, that was illegally obtained from embezzling payments for fictitious purchases of inventory through the creation of false purchase orders, supplier shipping documents, and supplier invoices.
While the auditor may identify or suspect corruption, bribery, or money laundering, as with fraud, the auditor does not make legal determinations on whether such acts have actually occurred.
Third-Party Fraud (Ref: Para. 18(a))
Fraud or suspected fraud committed against the entity by parties external to the entity is generally described as third-party fraud. Fraud as defined in paragraph 18(a) can include an intentional act by a third party and, accordingly, if an intentional act by a third party is identified or suspected that may have resulted in misappropriation of the entity’s assets or fraudulent financial reporting by the entity, the auditor performs audit procedures in paragraphs 55–58.
Parties external to the entity that may commit third-party fraud may include:
Related parties, where potential opportunities for collusion with management, overly complex transactions, or bias in the structure of transactions may exist, as explained in ASA 550[41].
Section Definitions (Ref: Para. 18) - Auditing Standard ASA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report (October 2025) - Definitions (Ref: Para. 18) | Zoe
Third parties with which the entity has a relationship to support their business model such as customers, suppliers, service providers or other external parties known to the entity. These relationships may introduce the risk of collusion with employees or others in the entity to, for example, create fictitious transactions to manipulate financial results.
Third parties unknown to the entity that may, for example, attempt to gain unauthorised access to an entity’s IT environment that affects financial reporting or assets, or disrupts the entity’s business operations or financial reporting processes.
Fraud Risk Factors (Ref: Para. 18(b) and 38)
The presence of fraud risk factors may affect the auditor’s assessment of inherent risk or control risk. Fraud risk factors may:
Be inherent risk factors, insofar as they affect inherent risk, and may be due to management bias. They may also arise from other identified inherent risk factors (e.g., complexity or uncertainty may create opportunities that result in a susceptibility to misstatement due to fraud). When fraud risk factors are inherent risk factors, the inherent risk is assessed before consideration of controls.
Relate to events or conditions that may exist in the entity’s system of internal control that provide an opportunity to commit fraud and are relevant to the consideration of the entity’s controls (i.e., related to control risk), and may be an indicator that other fraud risk factors are present.
While fraud risk factors may not necessarily indicate the existence of fraud, they have often been present in circumstances where frauds have occurred and therefore may indicate risks of material misstatement due to fraud.
Examples of fraud risk factors related to fraudulent financial reporting and misappropriation of assets are presented in Appendix 1. These illustrative fraud risk factors are classified based on the three conditions that are, individually or in combination, generally present when fraud exists:
An incentive or pressure to commit fraud;
A perceived opportunity to commit fraud; and
An attitude or rationalisation that justifies the fraudulent action.
Fraud risk factors reflective of an attitude that permits rationalisation of the fraudulent action may not be susceptible to observation by the auditor. Nevertheless, the auditor may become aware of the existence of such information through, for example, the required understanding of the entity’s control environment.[42] Although the fraud risk factors described in Appendix 1 cover a broad range of situations that may be faced by auditors, they are only examples and other fraud risk factors may exist.