Fraud

The AASB discussed issues related to the International Auditing and Assurance Standards Board’s (IAASB) proposed revisions to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• auditor’s responsibilities relating to fraud in an audit of financial statements;
• risk identification and assessment;
• scalability and proportionality of requirements when fraud or suspected fraud is identified; and
• transparency on fraud-related responsibilities and procedures in the auditor’s report.

The AASB reviewed a summary of the outreach and the feedback on the Exposure Draft, “Proposed Amendments to CAS 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements.” The Board discussed its response to the International Auditing and Assurance Standards Board (IAASB) on the proposed International Standards on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• practical examples of demonstrating professional skepticism;
• documentation of professional judgment regarding the presumption of risk of material misstatement due to fraud in revenue recognition;
• proposed application material on obtaining an understanding of whistleblower programs;
• clarity of the requirements when fraud or suspected fraud is identified, including non-material fraud;
• transparency in the auditor’s report;
• whether a stand-back requirement is needed;
• scalability concerns; and
• the effective date.

The AASB will submit its response letter to the IAASB by the June 5, 2024, comment deadline

The AASB discussed issues related to the Canadian exposure draft of CAS 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• the International Auditing and Assurance Standards Board’s (IAASB) approved the exposure draft of ISA 240 (Revised) and the conforming and consequential amendments;
• the Canadian wraparound document; and
• the other Canadian exposure draft considerations, including Canadian amendments, the exposure period, and compliance with the Board’s due process.

The AASB unanimously approved the Canadian exposure draft. The Board expects to issue it in early March 2024, with comments due by early May 2024.

The AASB discussed issues related to the IAASB’s proposed revisions to ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• the timing and duration of the IAASB exposure period;
• the interpretation of risks of management override of controls;
• the clarity of the examples where it may be appropriate to rebut the presumption that there are risks of material misstatement due to fraud in revenue recognition; and
• the Canadian exposure draft considerations, including Canadian amendments, outreach, and the Canadian wraparound.

The AASB discussed issues related to the IAASB project to revise ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• the support for the overall direction of the IAASB’s proposed draft of ISA 240 (Revised) with the following areas highlighted in the discussion:
  • the support of the definition of fraud and the relationship between fraud and corruption, bribery and money laundering – supported the definition of fraud, however the examples to demonstrate the relationship between fraud and corruption, bribery and money laundering could be further strengthened;
  • how to evaluate the authenticity of documents with an expressed concern the work effort is not clear when an auditor identifies conditions where a document may not be authentic;
  • that it may be difficult to identify the incentives and pressures of third-party fraud and opportunity would be a more appropriate area to focus on;
  • the support for the inclusion of understanding other controls activities that prevent, or detect fraud as it ties back to ISA 315 with a fraud lens;
  • the rebuttal of risk of fraud in revenue recognition and whether the factors presented when considering the rebuttal (i.e., the nature of the revenue stream being simple and the revenue recognition criteria being straightforward and noncomplex) are appropriate when the revised standard has a strong focus on risk of material misstatement;
  • the disclosure of key audit matters and the concern that there may be a widening expectation gap with general users of the financial statements. The proposed revisions to the transparency of “KAMs related to fraud” may lead general users of the financial statements to presume the financial statement now contains fraud and whether further revisions are needed.
• the support for the proposed conforming and consequential amendments; and
• the support for the topics to be included in the IAASB’s Explanatory Memo.

The IAASB is expected to approve an exposure draft at its December 2023 meeting. The AASB will plan for a Canadian exposure draft approval at its January 2024 meeting.

The AASB discussed issues related to the International Auditing and Assurance Standards Board ’s (IAASB) proposed revisions to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• the definition of fraud and applicability of examples used;
• the application of a fraud lens on risk identification and assessment;
• the work effort requirement when fraud or suspected fraud is identified; and
• transparency of disclosure of significant fraud risks as key audit matters.

The AASB discussed issues related to the International Auditing and Assurance Standards Board’s (IAASB) project to revise International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues included:

• the auditor’s responsibilities when fraud or suspected fraud is identified;
• communicating identified fraud risks and the auditor’s response in the auditor’s report; and
• proposals to address the issue of identified significant deficiencies in internal control that are relevant to the prevention and detection of fraud in the financial statements.

The AASB discussed issues related to the IAASB’s project to revise ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues included:

• options for adding further transparency in the auditor’s report regarding fraud;
• whether the proposed changes should apply to listed entities or all entities; and
• the proposed structure for ISA 240.

The AASB discussed issues related to the IAASB’s project to revise ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• the introductory paragraphs of the standard;
• the need for specialized skills;
• identifying and assessing the risks of material misstatement due to fraud;
• the presumption of fraud risk in revenue recognition;
• clarifying the requirements and application material in ISA 240 related to the approach to testing journal entries; and
• communicating with those charged with governance. 

The AASB provided input to the IAASB members from Canada on issues related to the IAASB’s project to revise ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:

• identifying and assessing risks of material misstatement due to fraud;
• communication with those charged with governance;
• transparency in reporting on fraud; and
• developing non-authoritative guidance illustrating the relationship between and linkage of ISA 240 and other ISAs.