IFAC’s Response to the IAASB’s ISA 240 Fraud Exposure Draft

IFAC welcomes the opportunity to provide input to the International Auditing and Assurance Standards Board’s (IAASB’s) Exposure Draft on the proposed ISA 240 (Revised), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements.   

We support the IAASB’s focus on addressing the issues and challenges related to fraud in audits of financial statements, but the proposals raise several concerns for the global profession. The primary responsibility for preventing and detecting fraud will always rest with management, so any approach should give due consideration to this fact. Extant requirements within ISA 240 generally provide an effective basis for dealing with the auditor’s responsibilities in relation to fraud, so the IAASB should take an evidence-based approach to amendments, ensuring any changes in approach that increase costs for auditors and clients genuinely add value and make a meaningful difference.  

We are concerned that some of the proposals may lead to a widening of the existing expectation gap, especially the changes to enhance transparency about matters related to fraud in the auditor’s report. The requirements proposed may also result in extra work and effort on all audits, regardless of whether specific fraud risks have been identified, and without corresponding increases in value. In this way, the changes may result in an approach that is not practical or cost effective for the majority of audits, while the proposals are unlikely to make a meaningful difference to audit quality in many cases.