ISA 240
Definition
International Standard on Auditing 240, 'The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements,' issued by the IAASB. Sets out how statutory auditors must assess fraud risk, respond to identified risks, and communicate fraud-related findings. The PCAOB equivalent for US public company audits is AS 2401.
- Issuing body
- IAASB (International Auditing and Assurance Standards Board)
- Full title
- The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements
- Scope
- Statutory financial statement audits
- US equivalent
- PCAOB AS 2401
Common questions
Does ISA 240 require the auditor to detect all fraud?+
No. ISA 240 sets out a duty to obtain reasonable assurance that the financial statements are free of material misstatement due to fraud, not a guarantee of detecting every fraudulent act. Inherent limitations such as collusion and forged documentation mean a properly planned audit can still miss fraud.
How does an ISA 240 statutory audit differ from a forensic audit into suspected fraud?+
A statutory audit under ISA 240 assesses fraud risk as part of forming an opinion on the financial statements as a whole, applied to every audit regardless of suspicion. A forensic audit is a targeted, evidence-gathering engagement launched once fraud is suspected or alleged, aimed at establishing facts that can support legal action.
Related terms
- Audit Expectation Gap
- The difference between what auditing standards require auditors to do and what the public, investors, or regulators believe auditors are responsible for....
- Chain of Custody
- The documented chronological record of who collected, handled, transferred, and examined a piece of evidence. For digital evidence, chain of custody includes...
- Forensic Audit
- An examination of an organisation's financial records and systems conducted specifically to gather evidence for legal proceedings. Distinguished from a regular audit...
- Fraudulent Financial Reporting
- One of the two ISA 240 fraud categories. It involves intentional misstatement or omission in financial statements to deceive users: overstating revenues,...
- Material Misstatement Due to Fraud
- A misstatement in the financial statements caused by intentional act (fraud rather than error) that is large enough, individually or collectively, to...
- Misappropriation of Assets
- The second ISA 240 fraud category. It involves theft or misuse of an entity's assets by employees or management: cash skimming, expense...
- Professional Skepticism
- An attitude requiring the auditor to question information, remain alert to conditions that may indicate misstatement, and critically assess audit evidence rather...
- Reasonable Assurance
- The high but not absolute level of assurance that a statutory auditor seeks to obtain before expressing an opinion. Reasonable assurance acknowledges...
- Statutory Audit
- An audit required by law or regulation, conducted by an independent external auditor, with the objective of expressing an opinion on whether...
- True and Fair View
- The standard of financial statement presentation required by statutory audit frameworks in the UK, EU, India, and many Commonwealth jurisdictions. In the...
Explained in these topics
- Audit Standards and the Auditor's Responsibility for Fraud DetectionThe International Standard on Auditing that governs the external auditor's responsibilities relating to fraud. It requires professional skepticism, fraud risk...
- Statutory Audit Versus Forensic Audit: Key Distinctions