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AU-C 240 Consideration of Fraud in a Financial Statement Audit

AU-C ORIGINAL PRONOUNCEMENT

Original Pronouncement

Statement on Auditing Standards (SAS) 122.

AU-C DEFINITIONS OF TERMS

Source: AU-C 240.11

Fraud. An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception that results in a misstatement in financial statements that are the subject of an audit.

Fraud risk factors. Events or conditions that indicate an incentive or pressure to perpetrate fraud, provide an opportunity to commit fraud, or indicate attitudes or rationalizations to justify a fraudulent action.

OBJECTIVES OF AU-C SECTION 240

AU-C 240.10 states that the objectives of the auditor are to:

1. Identify and assess the risks of material misstatement of the financial statements due to fraud;
2. Obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and
3. Respond appropriately to fraud or suspected fraud identified during the audit.

FUNDAMENTAL REQUIREMENTS

Basic Requirement

In every audit, the auditor is obligated to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. (AU-C 240.05)

Professional Skepticism

As defined in AU-C Section 200, professional skepticism is an attitude that includes ...