ISA 240 Auditor's responsibilities relating to fraud | Key Takeaways

Understanding Fraud and Auditor Responsibilities00:00:00

ISA 240 defines fraud as an intentional act of deception, distinguishing it from unintentional errors. The primary responsibility for preventing and detecting fraud lies with the company's management and board of directors, while auditors are tasked with providing reasonable assurance that financial statements are free from material misstatement.

The Auditor's Mindset and Toolkit00:02:56

Auditors must employ professional skepticism and utilize the 'fraud triangle'—incentive, opportunity, and rationalization—to assess risks. They perform team briefings to brainstorm scenarios and must remain unpredictable by mixing up testing methods to avoid detection evasion.

Managing Management Override00:05:00

Because management can override internal controls, auditors are required to test journal entries, review accounting estimates for bias, and investigate unusual transactions to detect potential manipulation.

Reporting Fraud and Limitations00:05:46

If fraud is discovered, it is treated as a systemic risk. Auditors must escalate findings to the appropriate level of management or the board and determine if there is a legal obligation to report the matter to external regulators. The process underscores the concept of 'reasonable assurance' rather than a absolute guarantee.