Auditing Standard ASA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report (October 2025)
Professional Scepticism (Ref: Para. 7, 1Professional Scepticism (Ref: Para. 7, 19—22 and 55—58)
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Professional Scepticism (Ref: Para. 7, 19–22 and 55–58)
Maintaining professional scepticism throughout the audit involves an ongoing questioning of whether the information and audit evidence obtained suggests that a material misstatement due to fraud may exist. It includes considering the reliability of the information intended to be used as audit evidence and identified controls in the control activities component, if any, over its preparation and maintenance. Due to the characteristics of fraud, the auditor’s professional scepticism is particularly important when considering the risks of material misstatement due to fraud.
The manner in which circumstances that may be indicative of fraud or suspected fraud that affects the entity come to the auditor’s attention throughout the audit may vary.
Examples:Possible sources that may provide information about circumstances that may be indicative of fraud or suspected fraud that affects the entity include: The auditor (e.g., when performing audit procedures in accordance with ASA 550, the auditor becomes aware of the existence of a related party relationship that management intentionally did not disclose to the auditor). Those charged with governance (e.g., when members of the audit committee conduct an independent investigation of unusual journal entries and other adjustments). Management (e.g., when evaluating the results of the entity’s risk assessment process). Individuals within the internal audit function (e.g., when individuals conduct the annual compliance procedures related to the entity’s system of internal control). An employee (e.g., by filing a tip using the entity’s whistleblower program). A former employee (e.g., by sending a complaint via electronic mail to the internal audit function).
Remaining alert for circumstances that may be indicative of fraud or suspected fraud throughout the audit is important, including when performing audit procedures near the end of the audit when time pressures to complete the audit engagement may exist. For example, audit evidence may be obtained near the end of the audit that may call into question the reliability of other audit evidence obtained or cast doubt on the integrity of management or those charged with governance. Appendix 3 contains examples of circumstances that may be indicative of fraud or suspected fraud.
As explained in ASA 220,[43] conditions inherent in some audit engagements can create pressures on the engagement team that may impede the appropriate exercise of professional scepticism when designing and performing audit procedures and evaluating audit evidence. Paragraphs A35–A37 of ASA 220 list examples of impediments to the exercise of professional scepticism at the engagement level, unconscious or conscious biases that may affect the engagement team’s professional judgements, and actions that may be taken to mitigate impediments to the exercise of professional scepticism.
Section Professional Scepticism (Ref: Para. 7, 1 - Auditing Standard ASA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report (October 2025) - Professional Scepticism (Ref: Para. 7, 19—22 and 55—58) | Zoe
Examples: A lack of cooperation and undue time pressures imposed by management negatively affected the engagement team’s ability to resolve a complex and contentious issue. These circumstances were, based on the engagement partner’s professional judgement, indicative of possible efforts by management to conceal fraud. The engagement partner involved more experienced members of the engagement team to deal with members of management who were difficult to interact with and communicated with those charged with governance as to the nature of the challenging circumstances, including the possible effect on the audit. Impediments imposed by management created difficulties for the engagement team in obtaining access to records, facilities, certain employees, customers, suppliers, and others. These circumstances were, based on the engagement partner’s professional judgement, indicative of possible efforts by management to conceal fraud. The engagement partner reminded the engagement team not to be satisfied with audit evidence that was less than persuasive when responding to assessed risks of material misstatement due to fraud and communicated with those charged with governance as to the nature of the challenging circumstances, including the possible effect on the audit.
Circumstances may also be encountered which may create threats to compliance with relevant ethical requirements. ASA 220[44] discusses that relevant ethical requirements, for example the Code, may contain provisions regarding the identification and evaluation of threats and how they are to be dealt with.[45]
The auditor may also address the threat to compliance with relevant ethical requirements, such as the principle of integrity, by communicating on a timely basis with those charged with governance about the circumstances giving rise to the threat. This communication may include a discussion about any inconsistencies in audit evidence obtained for which a satisfactory explanation has not been provided by management.
Inconsistent Responses
Inconsistent responses to enquiries may include inconsistencies both between the different groups of individuals specified in paragraph 21 (i.e., management, those charged with governance, individuals within the internal audit function, or others within the entity) and among individuals within the same group. For example, the auditor may identify inconsistent responses among different individuals within management.
Conditions That Cause the Auditor to Believe That a Record or Document May Not Be Authentic or That the Terms in a Document Have Been Modified
ASA 500[46] requires the auditor to consider the reliability of information intended to be used as audit evidence when designing and performing audit procedures. The reliability of information intended to be used as audit evidence deals with the degree to which the auditor may depend on such information. Authenticity is an attribute of the reliability of information that the auditor may consider. In doing so, the auditor may consider whether the source actually generated or provided the information, and was authorised to do so, and the information has not been inappropriately altered.
Audit procedures performed in accordance with ASA 500, this or other ASAs, or information from other sources, may bring to the auditor’s attention conditions that cause the auditor to believe that a record or document may not be authentic or that terms in a document have been modified but not disclosed to the auditor. The auditor is not, however, required to perform procedures that are specifically designed to identify conditions that indicate that a record or document may not be authentic or that terms in a document have been modified. Paragraph 22 applies if the auditor identifies such conditions during the course of the audit.
Examples:Conditions that, if identified, may cause the auditor to believe that a record or document is not authentic or that terms in a document have been modified but not disclosed to the auditor include: Unexplained alterations to documents received from external sources. Serial numbers used out of sequence or duplicated. Addresses and logos not as expected. Document style different to others of the same type from the same source (e.g., changes in fonts and formatting). Information that would be expected to be included is absent. Invoice references or descriptors that differ from other invoices received from the entity. Unusual terms of trade, such as unusual prices, interest rates, guarantees and repayment terms (e.g., purchase costs that appear unreasonable for the goods or services being charged for). Information that appears implausible or inconsistent with the auditor’s understanding and knowledge. A change from authorised signatory. Electronic documents with a last edited date that is after the date they were represented as finalised.
When conditions are identified that cause the auditor to believe that a record or document may not be authentic or that terms in a document have been modified but not disclosed to the auditor, possible additional audit procedures to investigate further may include:
Enquiries of management or others within the entity.
Confirming directly with the third party.
Using the work of an expert to evaluate the document’s authenticity.
Using automated tools and techniques, such as document authenticity or integrity technology, to evaluate the authenticity of the record or document.
When the results of the additional audit procedures indicate that a record or document is not authentic or that the terms in a document have been modified, the auditor may determine that the circumstances are indicative of fraud or suspected fraud and, accordingly, performs audit procedures in accordance with paragraphs 55–58.