Summary of SA 240 – The Auditor’s Responsibility Relating to fraud in an Audit of Financial Statements

Summary of SA 240

The Auditor’s Responsibility Relating to fraud in an Audit of Financial Statements

1. Summary of SA 240

The Auditor’s Responsibility Relating to fraud in an Audit of Financial Statements

Fraud V/s Error

v Fraud is an intentional act by any person within the entity while an error represents unintentional act resulting into misstatements of the financial statements.

v Fraud or Error may be material or immaterial.

Example of Frauds

Misappropriation of Assets	Theft of Assets
Fraudulent Financial Reporting	Intentional omission of amounts/ disclosures.

Reason for this SA

This SA deals with:-

v Auditor’s responsibility relating to fraud in audit of financial statements; &

v How SA 315 & 330 is to be applied in relation to risks of material misstatements due to fraud.

Objective of this SA

v Identify & Assess the Risks of Material Misstatements due to fraud (SA 315);

v Obtain Sufficient & appropriate Audit evidence about assessed risks (SA 500-599);

v Respond appropriately to assessed risks (SA 330)

Primary Responsibility

The primary responsibility to prevent, detect or correct error or fraud on timely basis is ofManagement.

Auditor’s Responsibility

To obtain reasonable assurance that the financial statements are free from material misstatements.

Auditor’s Duty

v To maintain professional skepticism during the audit.

v Discussion amongst the engagement team members

v Risk Assessment Procedures ( SA 315)

v Response to the assessed risks ( SA 330)

v Evaluation of evidences obtained

v Communication to TCWG ( SA 260)

v Audit Documentation

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