Paragraph 4 of ISA/HKSA 240 (Clarified) prescribes the primary responsibility for the
prevention and detection of fraud rests with both those charged with governance of
the entity and with management.
ISA/HKSA 240 (Clarified) also provides expanded operational guidance for auditors
to consider the existence of material misstatement due to fraud in a financial
statement audit. It emphasizes the auditor’s increased responsibility for detecting
fraud, and the auditor is now required to be more proactive in searching for fraud
during the whole audit process under ISA/HKSA 240 (Clarified). This is also complying
with the professional skepticism duty owed by auditor.
ISA 240 expanded operational guidance
The objectives of the auditor are:
(a) To identify and assess the risks of material misstatement of the financial
statements due to fraud;
(b) To obtain sufficient appropriate audit evidence regarding the assessed risks
of material misstatement due to fraud, through designing and implementing
appropriate responses; and
(c) To respond appropriately to fraud or suspected fraud identified during the audit.
If the auditor has identified a fraud or has obtained information that indicates that
a fraud may exist, the auditor shall communicate these matters on a timely basis
to the appropriate level of management in order to inform those with primary
responsibility for the prevention and detection of fraud of matters relevant to their
Where having discussed an identified suspected or actual instance of fraud which
could have a material effect on the financial statements with those charged with
governance and considered any views expressed on behalf of the entity and in the
light of any legal advice obtained, the auditors conclude that the matter ought
to be reported to a proper authority in the public interest, they would, except in
the circumstances covered...
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