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    Financial Reporting and Assurance

    Revised ISA 240 (The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements)

    • On July 8, 2025 revised standard was published by the International Accounting Standards Board (IASB)
    • Effective date: December 15, 2026. Early adoption of ISA 240 (Revised) is allowed, and jurisdictions are encouraged to consider it.

    Key Aspects of the Revised ISA 240

    • Clarify and strengthen auditor responsibilities and duties in detecting and preventing fraud.
    • It emphasizes applying a fraud lens in the auditor’s risk assessment and the appropriate responses to identified risks, and provides greater transparency in the auditor’s reports of publicly traded entities.
    • Increased transparency and communication around fraud-related procedures and reporting (especially for publicly traded entities).
    • The standard reinforces the ongoing need for professional skepticism when conducting fraud-related audit procedures.
    • Scalability and proportionality-The revisions include application material and examples to support the consistent and effective application of the standard to a range of audit engagements, regardless of size or complexity.

    Summarizing key features of old ISA 240 versus new ISA 240 (Revised, 2025),

    Area Old ISA 240 New ISA 240 (Revised, 2025)
    Scope Standard emphasizes on the auditor’s responsibility to consider fraud and error in an audit of financial statements. The revised standard refocuses on fraud only
    Fraud Lens / Risk Assessment The old standard requires identification and assessment of risk of material misstatement due to fraud, distinguishing between fraudulent financial reporting and misappropriation of assets, and considering management override The revised standard mandates applying a fraud lens throughout risk assessment — i.e., the auditor must explicitly view risk through a fraud perspective. Stronger linkage to other ISAs (ISA 315, etc.).
    Professional Skepticism The extant standard already requires maintenance of professional skepticism, awareness of the possibility of fraud even when past experience suggests no issues. The revised standard strengthens and makes more explicit expectations for consistent exercise of professional skepticism at all stages of the audit: a questioning mindset, challenge of assumptions, consideration of contradictory evidence.
    Use of Specialists The extant standard allows use of experts when necessary, but there is less detailed discussion. The revised standard gives clearer direction regarding when specialized skills or knowledge may be needed to investigate fraud or suspected fraud.
    Link to Going Concern / Financial Distress The extant standard deals only with fraud; links to going concern are more incidental. ISA 240 (Revised) is designed to be adopted in conjunction with ISA 570 (Revised 2024) because fraud risk and financial distress often intertwine.
    Key Audit Matters / Auditor’s Report The old standard does not require specific fraud-related KAM disclosures (except as relevant under general KAM rules). The revised standard introduces clarity around including fraud-related matters as KAMs in auditor’s report (for publicly traded / public interest entities) or stating that there are no KAMs related to fraud, if applicable.
    Documentation Requirements The auditor must document risk assessment, identified risks, responses, and communications. The revised standard tightens documentation expectations—more extensive support for judgments, responses, rationale, and professional skepticism.
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    • Financial Reporting and Assurance

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