article ISA
technical page 50
student accountANT
MARCH 2009
isa 240 (redrafted), auditors and fraud –
AND THE END OF WATCHDOGS AND BLOODHOUNDS
RELEVANT TO ACCA QUALIFICATION PAPERs f8 and p7
This article examines the definitions given by International Standard on Auditing (ISA) 240 (Redrafted) of fraud and error, and the historical expectations of the audit role. It also defines the extent of auditor responsibilities for the prevention and detection of fraud, including the need for professional skepticism and discussion among the engagement team. The article then summarises the key risk assessment procedures required of auditors by ISA 240 (Redrafted), and concludes that the traditional ‘watchdog not bloodhound’ philosophy regarding the extent of auditor responsibilities for fraud detection is no longer valid in the context of the requirements of the redrafted ISA.
Fraud is a highly controversial area, and the extent of auditor responsibility for the prevention and detection of fraud has generated considerable discussion in recent years. This article aims to summarise the current extent of auditor responsibilities for fraud, as per the requirements of ISA 240 (Redrafted), The Auditor’s
Responsibilities Relating to Fraud in an Audit of
Financial Statements. ISA 240 (Redrafted) was issued in December 2006 and is effective for audits of financial statements for periods beginning on or after 15 December 2008. The International
Auditing and Assurance Standards Board (IAASB)
Clarity Project was launched in 2004 in order to encourage greater use of its standards and to facilitate the process of translation of standards into other languages. ISA 240 is described by the IAASB Handbook (reference 1) as ‘redrafted’ because it has been revised in the past few years and is not in need of further revision by the Clarity
Project. As a result, the ‘clarified’ version of ISA
240 is the same as the redrafted version. See the
IAASB Handbook, and the
student accountANT
MARCH 2009
isa 240 (redrafted), auditors and fraud –
AND THE END OF WATCHDOGS AND BLOODHOUNDS
RELEVANT TO ACCA QUALIFICATION PAPERs f8 and p7
This article examines the definitions given by International Standard on Auditing (ISA) 240 (Redrafted) of fraud and error, and the historical expectations of the audit role. It also defines the extent of auditor responsibilities for the prevention and detection of fraud, including the need for professional skepticism and discussion among the engagement team. The article then summarises the key risk assessment procedures required of auditors by ISA 240 (Redrafted), and concludes that the traditional ‘watchdog not bloodhound’ philosophy regarding the extent of auditor responsibilities for fraud detection is no longer valid in the context of the requirements of the redrafted ISA.
Fraud is a highly controversial area, and the extent of auditor responsibility for the prevention and detection of fraud has generated considerable discussion in recent years. This article aims to summarise the current extent of auditor responsibilities for fraud, as per the requirements of ISA 240 (Redrafted), The Auditor’s
Responsibilities Relating to Fraud in an Audit of
Financial Statements. ISA 240 (Redrafted) was issued in December 2006 and is effective for audits of financial statements for periods beginning on or after 15 December 2008. The International
Auditing and Assurance Standards Board (IAASB)
Clarity Project was launched in 2004 in order to encourage greater use of its standards and to facilitate the process of translation of standards into other languages. ISA 240 is described by the IAASB Handbook (reference 1) as ‘redrafted’ because it has been revised in the past few years and is not in need of further revision by the Clarity
Project. As a result, the ‘clarified’ version of ISA
240 is the same as the redrafted version. See the
IAASB Handbook, and the
References: Board, 2008 Edition, pages 1 to 4, in Part II of Handbook of International Auditing, Assurance, and Ethics Pronouncements, IAASB, 2008 Edition. Control Journal, Volume 1, 2004.