SA 240– THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD

IN AN AUDIT OF FINANCIAL STATEMENTS

Why Management do Fraud
Incentive – Bonus to employess for more sales
Abality of people – If you will not achieve this target, Bonus will not paid
Opportunity to commit Fraud – Weak Internal control (Issue Procedure)
SITUATION MANAGEMENT AUDITOR
Responsibility for Primary Responsibility – Management An auditor is responsible for obtaining
the Prevention and & TCWG reasonable assurance that the
Detection of Fraud Management and those charged with financial statements taken as a whole
governance, should place a strong are free from material misstatement.
emphasis on fraud prevention, detection Link With –
and correction. • SA 200 INHERENT
LIMITATION
• RISK OF FRAUD IS
HIGHER THAN ERROR
• INTENTIONAL FRAUD
• AUDITOR SHOULD
MAINTAIN
PROFESSIONAL
SKEPTICISM

AUDIT PROCEDURE
RISK ASSESSMENT IDENTIFICATION & RESPONSE TO ROMM DUE
PROCEDURE ASSESSMENT OF ROMM TO FRAUD
Enquiring Management and In accordance with SA 315, the Overall Responses SA 330
Others within the Entity auditor shall identify and assess
The auditor shall make the risks of material The auditor shall:
inquiries of management misstatement due to fraud at the • Assign and supervise
regarding: financial statement level, and at personnel as per their
the assertion level for classes of capability;
i. Management’s
• Evaluate whether
assessment of the risk of transactions, account balances and
accounting policies
material misstatement due disclosures.
adopted by the entity
to fraud;
indicate fraudulent
ii. Management’s process The auditor shall obtain an
understanding of the entity’s financial reporting
for identifying &
resulting from
responding to the risks of related controls, including control
activities, relevant to such risks. management’s effort to
fraud in the entity,
manage earnings; and
including any specific
risks of fraud; • Incorporate surprise
iii. Management’s element in the selection of
communication, if any, the NTE of audit
to those charged with procedures.
governance; and
iv. Management’s
communication, if any,
to employees regarding
its views on business
 practices and ethical Response to Assessed Risks of
behaviour. Material Misstatement Due to
For those entities that have an Fraud at the Assertion Level
internal audit function, the
• Perform further audit
auditor shall make inquiries of
procedure
internal auditor.
• If Auditor identify mis-
2. Enquiring Those Charged statement than consider
with Governance whether such a
i. He shall obtain an misstatement is indicative
understanding of how of fraud
TCWG supervise • Re-evaluate the
management’s processes. assessment of the risks of
ii. The auditor shall ask material misstatement due
TCWG whether they have to fraud and its resulting
knowledge of any fraud impact on the nature,
affecting the entity. timing and extent of audit
procedures.
• Evaluate the implications
for the audit

OBTAIN MRL FOR

1. Its responsibility for the design, implementation and maintenance of internal control to prevent and detect
fraud;
2. It has disclosed to the auditor the results of its assessment of the risk of fraud;
3. It has disclosed to the auditor its knowledge of fraud or suspected fraud affecting the entity involving:
a. Management;
b. Employees who have significant roles in internal control; or
c. Others; and
4. It has disclosed to the auditor its knowledge of any allegations of fraud, or suspected fraud, affecting the
entity’s financial statements.

REPORTING RESPONSIBILITY
To SEC IN CARO,2016 NOT ABLE TO CONTINUE
MANAGEMENT/ 143(12)
TCWG
REFER CHART REFER The auditor is also The auditor shall:
CHART required to report as
per Clause (x) of ❖ Determine the professional and legal
Paragraph 3 of responsibilities applicable in the circumstances,
CARO, 2016, including whether there is a requirement for the
Whether any fraud auditor to report to the person or persons who
by the company or made the audit appointment or, in some cases, to
any fraud on the regulatory authorities;
company by its ❖ Consider whether it is appropriate to withdraw
officers or from the engagement; and
employees has been ❖ If the auditor withdraws:
noticed or reported • Discuss with the appropriate level of
during the year; If management and those charged with
yes, the nature and governance, the auditor’s withdrawal from the
 the amount involved engagement and the reasons for the
is to be indicated. withdrawal; and
• Determine whether there is a professional or
legal requirement to report to the person or
persons who made the audit appointment or, in
some cases, to regulatory authorities, the
auditor’s withdrawal from the engagement and
the reasons for the withdrawal.

Provisions applicable to Punishment for non-

No liability of auditor compliance [Section
other auditors [Section
[Section 143(13)] 143(15)]
143(14)]
•An auditor shall not be deemed •The provisions w.r.t. reporting •(a) Minimum Fine: Rs. 1 lakh
to be guilty for breach of any of of fraud shall mutatis •(b) Maximum Fine: Rs. 25 lakh.
his duties by reason of his mutandis apply to -
reporting any matter to the •(a) the cost accountant
Central Government if such conducting cost audit under
reporting is done in good faith. section 148; or
•(b) the company secretary in
practice conducting secretarial
audit under section 204.