Ask a member of the public what auditors’ work entails, and the answer “to spot fraud” is likely to emerge early in the discussion. The recent high-profile accounting scandals in the UK and elsewhere focus the spotlight firmly on auditors’ duties to do precisely this, and have prompted the FRC, the UK’s audit regulator, to consider whether existing auditing standards go far enough.
A few days ago, the FRC issued a [Consultation](https://www.frc.org.uk/news/october-2020/consultation-on-revised-auditing-standard-for-the) on revising ISA (UK) 240 relating to auditors’ responsibilities concerning fraud. The proposed revision stems not from changes at the international level but instead from the ongoing concerns over audit quality in the UK. In particular, the Brydon Review contained several proposals aimed at clarifying and strengthening auditors’ responsibilities in this area. The FRC believed that these proposals warranted a UK-only revision.
What is changing?
The main proposed changes are as follows:
- The objectives have been strengthened to emphasise that auditors must aim to ‘obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement due to fraud’, not simply to assess risks and respond to these.
- There is (as might be expected) more emphasis on the need for professional scepticism including alertness to indications that records or documents may not be authentic.
- A significant increase in the requirements to discuss fraud risk among the audit team at the planning stage, with examples in the application material of the matters that may be discussed.
- A requirement that the auditor assesses whether the team needs specialized skills or knowledge (including, possibly, the input of a forensic expert).
- More requirements for response to assessed risks including the ‘stand-back’ requirements recently added to ISA (UK) 540.
There are also new requirements in areas such as communication with those charged with governance, documentation and reporting though these are arguably less significant changes.
What is the proposed effective date?
The changes are scheduled to apply for periods beginning on or after 15 December 2021 – note that this is the same effective date as for the newly-revised ISA (UK) 315.
When does the consultation period end?
Comments are invited by 5pm on Friday 29 January 2021.