The International Federation of Accountants (IFAC) has submitted a comment letter to the International Auditing and Assurance Standards Board (IAASB) on its exposure draft for proposed revisions to ISA 240, which covers fraud.
IFAC supports the IAASB’s focus on fraud, but the proposals raise several concerns for the global profession. Any approach to these issues should reflect the fact that the primary responsibility for preventing and detecting fraud rests with management. Extant requirements within the standard 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 that any changes in approach that increase costs for auditors and clients can be justified through added value.
Some of the proposals may lead to a widening of the existing expectation gap—especially the changes related to transparency in the auditor’s report. The proposed requirements 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. The resulting approach might not be practical or cost effective for many audits and is unlikely to make a meaningful difference to audit quality in many cases.
IFAC will remain engaged with the IAASB’s consultation process until the publication of a final standard and supporting guidance materials.