5 minute read
IAASB EXPLORES PROPOSED CHANGES TO FRAUD STANDARD
by kwedamedia
SAIGA Correspondent
Recent corporate failures throughout the world have underscored the benefits of clarifying and enhancing the role of auditors in responding to fraud and suspected fraud as a means of enhancing public trust in financial reporting.
As the International Auditing and Assurance Standards Board (IAASB) reaches the midpoint of its public consultation on proposed amendments to its fraud standard, the independent body has released a new four-part video series on the proposed revision to the international standard on auditing that deals with the auditor’s responsibilities related to fraud ISA 240.
The series seeks to help stakeholders understand the proposed changes that strengthen auditor’s responsibilities related to fraud, and the rationale behind them.
In one of the four-part videos, IAASB Senior Manager Nathalie Baumgaertener Dutang provides insights on how the proposed changes make these responsibilities clearer and more practical through her presentation titled: “Spotlight on Auditor’s Responsibilities: Understanding auditors’ responsibilities relating to fraud in an audit”.
“The changes are made to address one of our key objectives that support the public interest issues related to fraud,” says Dutang.
“The key objective is to clarify the auditor’s role and responsibilities in the auditing of financial statements. In the video, I explain the changes made to propose ISA 240 revised, to clarify and emphasize auditor’s responsibilities relating to fraud in an audit. In 2020 we shared a discussion paper on fraud and on-gong concern.
Dutang further explained that the feedback received highlighted that describing the inherent limitations related to fraud in an audit of financial statements in the same paragraphs used to describe the auditors’ responsibilities relating to fraud:
1. Conflate the two key concepts
2. Contribute to a lack of clarity around what the auditors’ responsibilities are:
The International Auditing and Assurance Standards Board (IAASB) is an independent standard-setting body that serves the public interest by setting highquality international standards for auditing, quality control, review, other assurance, and related services, and by facilitating the convergence of international and national standards. In doing so, the IAASB enhances the quality and uniformity of practice throughout the world and strengthens public confidence in the global auditing and assurance profession.
To respond to these identified issues the IAASB proposes to set the tone for a clear and affirmative description of the auditors’ responsibilities relating to fraud in the introductory paragraphs, and to reduce the ambiguity between the inherent limitations of the audit and the auditors’ responsibilities by decoupling the two concepts.
The IAASB does this by firstly describing the responsibilities of the auditor before the inherent limitations of the audit and in separate paragraphs. The announcement makes the description of the auditor’s responsibilities in the most
succinct language that may diminish the auditor’s responsibility relating to fraud.
Secondly, the IAASB proposes to introduce a statement which clarifies that the inherent limitations do not diminish the auditor’s responsibilities relating to fraud.
Thirdly, the IAASB proposes describing the auditor’s responsibilities before those of management and those charged with governance as the focus of evaluating standards relating to fraud should be on the role and responsibilities of the auditor.
“I’d like to highlight that in making these changes we are not seeking to expand the role and responsibilities of the auditor relating to fraud, but we just want to clarify the auditor’s responsibilities,” added Dutang.
“The other change is the key concept introduced to clarify all the auditor goals about determining whether an identified misstatement due to fraud or suspected fraud is material.
The intention is to make it clear that professional judgement is required, together with an analysis of the types of situations that lead to fraud and the identified misstatements.
New application material clarifies that although and identified misstatements due to fraud may not be “quantitatively material” it may nevertheless be “quantitatively material” depending on who instigated the fraud and why the fraud was perpetuated.”
While Dutang argues that the proposed changes make these responsibilities clearer and more practical in the Spotlight on Auditor’s Responsibilities, her colleagues gives specifics on the other areas of focus.
(more on this can be found online on the underlined links)
• IAASB Member and Fraud Task Force Chair Julie Corden talks about Overview of Key Changes, providing a brief background information and the changes are being proposed.
• Auditor’s Response to Fraud or Suspected Fraud: How are auditors, and engagement partners, being asked to enhance how they respond to fraud or suspected fraud? IAASB Principal Angelo Giardina outlines the new requirements, relocated requirements, and clarifications. Link: Understanding Proposed Changes to the Fraud Standard: Auditor’s Response to Fraud or Suspected Fraud - YouTube
• Enhanced Transparency in the Auditor’s Report: Join IAASB Director Jasper van den Hout to learn more about how the proposed changes will enhance transparency in the auditor’s report regarding auditors’ responsibilities relating to fraud as well as fraud-related procedures (i.e., Key Audit Matters related to fraud).
The proposed changes to ISA 240 significantly strengthen auditors’ responsibilities relating to fraud. The IAASB encourages all stakeholders to submit their comments using the Response Template on the IAASB website, designed to facilitate structured responses and streamline feedback collation and analysis.
Stakeholders are invited to share their insights by June 5, 2024.
