IAASB Issues Revised ISA 240 on Auditor Fraud Responsibilities

Posted 14 July 2025 Written by Acts Online
Category Financial and Accounting

Brought to you by SA Accounting Academy: The International Auditing and Assurance Standards Board (IAASB) has issued the revised International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. This update clarifies the auditor’s role in fraud detection and introduces more rigorous risk assessment requirements.

In terms of the revised ISA 240, auditors are required to apply a heightened “fraud lens” during the identification and assessment of risks of material misstatement. The standard responds to increased stakeholder concern regarding the efficacy of audits in detecting corporate fraud. The revisions specifically aim to provide greater transparency in the auditor’s reports of publicly traded entities and ensure that responses to assessed risks are appropriate and robust.

The updated standard is designed to align with ISA 570 (Revised 2024), Going Concern, which was issued in April 2025. This alignment recognizes that fraud and financial distress are frequently interrelated risks. Together, these standards form a coordinated regulatory framework intended to bolster corporate transparency and public trust in financial reporting.

Key Enhancements and Implementation

The revisions to ISA 240 incorporate several critical procedural changes for audit engagements:

  • Clarification of the auditor’s responsibilities regarding the detection of material misstatements due to fraud.
  • Enhanced requirements for risk identification and assessment procedures, specifically emphasizing professional skepticism.
  • Increased transparency requirements for auditor reports, particularly for listed and public interest entities (PIEs).
  • Integration with narrow-scope amendments for PIEs to ensure a cohesive reporting package.

ISA 240 (Revised) becomes effective for audits of financial statements for periods beginning on or after 15 December 2026. This timeline allows firms to update their internal methodologies and training protocols before the mandatory implementation date.

Click here to download the 138-page Revised Standard and the related Basis for Conclusions.

What this means for you, your business, or your clients

  • For yourself: You must update your professional knowledge base and CPD records to reflect the enhanced fraud detection and reporting requirements mandated by the revised ISA 240.
  • For your business: Audit firms must revise their internal audit methodologies, risk assessment templates, and quality management systems to comply with the new “fraud lens” requirements before the 15 December 2026 effective date.
  • For your clients: Listed clients and public interest entities should be advised that auditor reports will now contain significantly more detail regarding fraud risk assessments and the auditor’s response to those risks.

Originally published at https://accountingacademy.co.za/news/read/iaasb-newly-revised-isa-240-the-auditor-s-responsibilities-relating-to-fraud-in-an-audit-of-financial-statements

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