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8A 240 (REV|8E0}

1
ThE AU0|T0R'8 RE8P0N8||L|T|E8
RELAT|NC T0 FRAU0
|N AN AU0|T 0F F|NAN6|AL 8TATEHENT8
(Effective for audits of financial statements
for periods beginning on or after 1st April 2009)
6ontents
Paragraph(s}
|ntroduct|on
3cope ol lr|s 3A .......................................................................................1-8
Ellecl|ve 0ale .............................................................................................. 9
0bject|ves.................................................................................................10
0ef|n|t|ons ................................................................................................ 11
Requ|rements
Proless|ora| 3|epl|c|sr .......................................................................12-11
0|scuss|or Arorg lre Ergagererl Tear ............................................... 15
R|s| Assessrerl Procedures ard Re|aled Acl|v|l|es ...........................1-21
lderl|l|cal|or ard Assessrerl ol lre R|s|s ol
Valer|a| V|sslalererl 0ue lo Fraud ....................................................25-2Z
Resporses lo lre Assessed R|s|s ol
Valer|a| V|sslalererl 0ue lo Fraud ....................................................28-33
Eva|ual|or ol Aud|l Ev|derce ................................................................31-3Z
Aud|lor urao|e lo Corl|rue lre Ergagererl ............................................38
Varagererl Represerlal|ors ...................................................................39
Corrur|cal|ors lo Varagererl ard W|lr
Trose Crarged W|lr 0overrarce .........................................................10-12
1
lssued |r 0eceroer, 200Z. Ear||er |roWr as lre Aud|l|rg ard Assurarce 3lardard (AA3)
1 'Tre Aud|lor's Respors|o|||ly lo Cors|der Fraud ard Error |r ar Aud|l ol F|rarc|a|
3lalererls.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-32
Corrur|cal|ors lo Regu|alory ard Erlorcererl Aulror|l|es ...................13
0ocurerlal|or .................................................................................... 11-1Z
App||cat|on and 0ther Exp|anatory Hater|a|
Craracler|sl|cs ol Fraud ......................................................................A1-A
Proless|ora| 3|epl|c|sr ......................................................................AZ-A9
0|scuss|or Arorg lre Ergagererl Tear ................................. .A10-A11
R|s| Assessrerl Procedures ard Re|aled Acl|v|l|es ......................A12-A2Z
lderl|l|cal|or ard Assessrerl ol lre R|s|s ol
Valer|a| V|sslalererl 0ue lo Fraud ...............................................A28-A32
Resporses lo lre Assessed R|s|s ol
Valer|a| V|sslalererl 0ue lo Fraud ...............................................A33-A1Z
Eva|ual|or ol Aud|l Ev|derce ...........................................................A18-A52
Aud|lor urao|e lo Corl|rue lre Ergagererl ..................................A53-A5
Varagererl Represerlal|ors ........................................................A5Z-A58
Corrur|cal|ors lo Varagererl ard
W|lr Trose Crarged W|lr 0overrarce ............................................A59-A3
Corrur|cal|ors lo Regu|alory ard Erlorcererl Aulror|l|es .........A1-A
Varer|a| Voo|l|car|ons ro l$/ 240, Tne /uo|rors Respons|o|||r, re|ar|ng ro
Frauo |n an /uo|r ol F|nanc|a| $raremenrs
/ppeno|ces.
1. Exarp|es ol Fraud R|s| Faclors
2. Exarp|es ol Poss|o|e Aud|l Procedures lo Address lre Assessed R|s|s
ol Valer|a| V|sslalererl 0ue lo Fraud
3. Exarp|es ol C|rcurslarces lral lrd|cale lre Poss|o|||ly ol Fraud
3lardard or Aud|l|rg (3A) 210 (Rev|sed), 'Tre Aud|lor's Respors|o|||l|es
Re|al|rg lo Fraud |r ar Aud|l ol F|rarc|a| 3lalererls srou|d oe read |r lre
corlexl ol lre 'Prelace lo lre 3lardards or 0ua||ly Corlro|, Aud|l|rg,
Rev|eW, 0lrer Assurarce ard Re|aled 3erv|ces
2
, Wr|cr sels oul lre
aulror|ly ol 3As.
2
Puo||sred |r lre Ju|y, 200Z |ssue ol lre Jourra|.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-33
|ntroduct|on
8cope of th|s 8A
1. Tr|s 3lardard or Aud|l|rg (3A) dea|s W|lr lre aud|lor's
respors|o|||l|es re|al|rg lo lraud |r ar aud|l ol l|rarc|a| slalererls.
3pec|l|ca||y, |l expards or roW 3A 315, 'lderl|ly|rg ard Assess|rg lre R|s|s
ol Valer|a| V|sslalererl Trrougr urderslard|rg lre Erl|ly ard lls
Erv|rorrerl, ard 3A 330, 'Tre Aud|lor's Resporses lo Assessed R|s|s,
are lo oe app||ed |r re|al|or lo r|s|s ol raler|a| r|sslalererl due lo lraud.
Characteristics of Fraud
2. V|sslalererls |r lre l|rarc|a| slalererls car ar|se lror e|lrer lraud
or error. Tre d|sl|rgu|sr|rg laclor oelWeer lraud ard error |s Wrelrer lre
urder|y|rg acl|or lral resu|ls |r lre r|sslalererl ol lre l|rarc|a| slalererls
|s |rlerl|ora| or ur|rlerl|ora|.
3. A|lrougr lraud |s a oroad |ega| corcepl, lor lre purposes ol lre 3As,
lre aud|lor |s corcerred W|lr lraud lral causes a raler|a| r|sslalererl |r
lre l|rarc|a| slalererls. TWo lypes ol |rlerl|ora| r|sslalererls are
re|evarl lo lre aud|lor - r|sslalererls resu|l|rg lror lraudu|erl l|rarc|a|
reporl|rg ard r|sslalererls resu|l|rg lror r|sappropr|al|or ol assels.
A|lrougr lre aud|lor ray suspecl or, |r rare cases, |derl|ly lre occurrerce
ol lraud, lre aud|lor does rol ra|e |ega| delerr|ral|ors ol Wrelrer lraud
ras aclua||y occurred. (Rel: Para. A1-A)
Responsibility for the Prevention and 0etection of Fraud
1. Tre pr|rary respors|o|||ly lor lre preverl|or ard delecl|or ol lraud
resls W|lr oolr lrose crarged W|lr goverrarce ol lre erl|ly ard
raragererl. ll |s |rporlarl lral raragererl, W|lr lre overs|grl ol lrose
crarged W|lr goverrarce, p|ace a slrorg erpras|s or lraud preverl|or,
Wr|cr ray reduce opporlur|l|es lor lraud lo la|e p|ace, ard lraud
delerrerce, Wr|cr cou|d persuade |rd|v|dua|s rol lo corr|l lraud oecause
ol lre |||e||rood ol delecl|or ard pur|srrerl. Tr|s |rvo|ves a corr|lrerl
lo creal|rg a cu|lure ol roresly ard elr|ca| oerav|or Wr|cr car oe re|rlorced
oy ar acl|ve overs|grl oy lrose crarged W|lr goverrarce. lr exerc|s|rg
overs|grl respors|o|||ly, lrose crarged W|lr goverrarce cors|der lre
polerl|a| lor overr|de ol corlro|s or olrer |rappropr|ale |rl|uerce over lre
l|rarc|a| reporl|rg process, sucr as ellorls oy raragererl lo rarage
earr|rgs |r order lo |rl|uerce lre percepl|ors ol ara|ysls as lo lre erl|ly's
perlorrarce ard prol|lao|||ly.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-34
Responsibilities of the Auditor
5. Ar aud|lor corducl|rg ar aud|l |r accordarce W|lr 3As |s respors|o|e
lor oola|r|rg reasorao|e assurarce lral lre l|rarc|a| slalererls la|er as a
Wro|e are lree lror raler|a| r|sslalererl, Wrelrer caused oy lraud or
error. As descr|oed |r 3A 200, '0ojecl|ve ard 0erera| Pr|rc|p|es 0overr|rg
ar Aud|l ol F|rarc|a| 3lalererls
3
, oW|rg lo lre |rrererl ||r|lal|ors ol ar
aud|l, lrere |s ar uravo|dao|e r|s| lral sore raler|a| r|sslalererls ol lre
l|rarc|a| slalererls W||| rol oe delecled, ever lrougr lre aud|l |s proper|y
p|arred ard perlorred |r accordarce W|lr lre 3As.
. Tre r|s| ol rol delecl|rg a raler|a| r|sslalererl resu|l|rg lror lraud
|s r|grer lrar lre r|s| ol rol delecl|rg ore resu|l|rg lror error. Tr|s |s
oecause lraud ray |rvo|ve sopr|sl|caled ard carelu||y orgar|zed screres
des|gred lo corcea| |l, sucr as lorgery, de||oerale la||ure lo record
lrarsacl|ors, or |rlerl|ora| r|srepreserlal|ors oe|rg rade lo lre aud|lor.
3ucr allerpls al corcea|rerl ray oe ever rore d|ll|cu|l lo delecl Wrer
accorpar|ed oy co||us|or. Co||us|or ray cause lre aud|lor lo oe||eve lral
aud|l ev|derce |s persuas|ve Wrer |l |s, |r lacl, la|se. Tre aud|lor's ao|||ly lo
delecl a lraud deperds or laclors sucr as lre s||||lu|ress ol lre perpelralor,
lre lrequercy ard exlerl ol rar|pu|al|or, lre degree ol co||us|or |rvo|ved,
lre re|al|ve s|ze ol |rd|v|dua| arourls rar|pu|aled, ard lre ser|or|ly ol
lrose |rd|v|dua|s |rvo|ved. wr||e lre aud|lor ray oe ao|e lo |derl|ly
polerl|a| opporlur|l|es lor lraud lo oe perpelraled, |l |s d|ll|cu|l lor lre aud|lor
lo delerr|re Wrelrer r|sslalererls |r judgrerl areas sucr as accourl|rg
esl|rales are caused oy lraud or error.
Z. Furlrerrore, lre r|s| ol lre aud|lor rol delecl|rg a raler|a|
r|sslalererl resu|l|rg lror raragererl lraud |s grealer lrar lor erp|oyee
lraud, oecause raragererl |s lrequerl|y |r a pos|l|or lo d|recl|y or
|rd|recl|y rar|pu|ale accourl|rg records, preserl lraudu|erl l|rarc|a|
|rlorral|or or overr|de corlro| procedures des|gred lo preverl s|r||ar lrauds
oy olrer erp|oyees.
8. wrer oola|r|rg reasorao|e assurarce, lre aud|lor |s respors|o|e lor
ra|rla|r|rg ar all|lude ol proless|ora| s|epl|c|sr lrrougroul lre aud|l,
cors|der|rg lre polerl|a| lor raragererl overr|de ol corlro|s ard
recogr|z|rg lre lacl lral aud|l procedures lral are ellecl|ve lor delecl|rg
3
Preserl|y, AA3 1 (Reruroered as 3A 200), '8as|c Pr|rc|p|es 0overr|rg ar lrlerra| Aud|l
ard AA3 2 (Reruroered as 3A 200A) 0ojecl|ve ard 3cope ol ar Aud|l ol F|rarc|a|
3lalererls correspord lo lrlerral|ora| 3lardard or Aud|l|rg (l3A) 200. 8olr lre AA3s are
currerl|y oe|rg rev|sed |r lre ||grl ol lre l3A 200. Posl lr|s rev|s|or, lre pr|rc|p|es covered oy
AA3 1 ard AA3 2 W||| oe rerged |rlo ore 3lardard |.e., 3A 200.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-35
error ray rol oe ellecl|ve |r delecl|rg lraud. Tre requ|rererls |r lr|s 3A
are des|gred lo ass|sl lre aud|lor |r |derl|ly|rg ard assess|rg lre r|s|s ol
raler|a| r|sslalererl due lo lraud ard |r des|gr|rg procedures lo delecl
sucr r|sslalererl.
Effect|ve 0ate
9. Tr|s 3A |s ellecl|ve lor aud|ls ol l|rarc|a| slalererls lor per|ods
oeg|rr|rg or or aller 1sl Apr||, 2009.
0bject|ves
10. Tre oojecl|ves ol lre aud|lor are:
(a) To |derl|ly ard assess lre r|s|s ol raler|a| r|sslalererl |r lre
l|rarc|a| slalererls due lo lraud;
(o) To oola|r sull|c|erl appropr|ale aud|l ev|derce aooul lre assessed
r|s|s ol raler|a| r|sslalererl due lo lraud, lrrougr des|gr|rg ard
|rp|ererl|rg appropr|ale resporses; ard
(c) To respord appropr|ale|y lo |derl|l|ed or suspecled lraud.
0ef|n|t|ons
11. For purposes ol lre 3As, lre lo||oW|rg lerrs rave lre rear|rgs
allr|ouled oe|oW:
(a) Frauo - Ar |rlerl|ora| acl oy ore or rore |rd|v|dua|s arorg
raragererl, lrose crarged W|lr goverrarce, erp|oyees, or lr|rd
parl|es, |rvo|v|rg lre use ol decepl|or lo oola|r ar urjusl or |||ega|
advarlage.
(o) Frauo r|sk lacrors - Everls or cord|l|ors lral |rd|cale ar |rcerl|ve or
pressure lo corr|l lraud or prov|de ar opporlur|ly lo corr|l lraud.
Requ|rements
Profess|ona| 8kept|c|sm
12. lr accordarce W|lr 3A 200, lre aud|lor sra|| ra|rla|r ar all|lude ol
proless|ora| s|epl|c|sr lrrougroul lre aud|l, recogr|z|rg lre poss|o|||ly lral
a raler|a| r|sslalererl due lo lraud cou|d ex|sl, rolW|lrslard|rg lre
aud|lor's pasl exper|erce ol lre roresly ard |rlegr|ly ol lre erl|ly's
raragererl ard lrose crarged W|lr goverrarce. (Rel: Para. AZ- A8)
13. ur|ess lre aud|lor ras reasor lo oe||eve lre corlrary, lre aud|lor
ray accepl records ard docurerls as geru|re. ll cord|l|ors |derl|l|ed
dur|rg lre aud|l cause lre aud|lor lo oe||eve lral a docurerl ray rol oe
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-36
aulrerl|c or lral lerrs |r a docurerl rave oeer rod|l|ed oul rol d|sc|osed
lo lre aud|lor, lre aud|lor sra|| |rvesl|gale lurlrer. (Rel: Para. A9)
11. wrere resporses lo |rqu|r|es ol raragererl or lrose crarged W|lr
goverrarce are |rcors|slerl, lre aud|lor sra|| |rvesl|gale lre
|rcors|slerc|es.
0|scuss|on Among the Engagement Team
15. 3A 315 requ|res a d|scuss|or arorg lre ergagererl lear
reroers ard a delerr|ral|or oy lre ergagererl parlrer ol rallers Wr|cr
are lo oe corrur|caled lo lrose lear reroers rol |rvo|ved |r lre
d|scuss|or

. Tr|s d|scuss|or sra|| p|ace parl|cu|ar erpras|s or roW ard


Wrere lre erl|ly's l|rarc|a| slalererls ray oe suscepl|o|e lo raler|a|
r|sslalererl due lo lraud, |rc|ud|rg roW lraud r|grl occur. Tre d|scuss|or
sra|| occur rolW|lrslard|rg lre ergagererl lear reroers' oe||els lral
raragererl ard lrose crarged W|lr goverrarce are roresl ard rave
|rlegr|ly. (Rel: Para. A10-A11)
R|sk Assessment Procedures and Re|ated Act|v|t|es
1. wrer perlorr|rg r|s| assessrerl procedures ard re|aled acl|v|l|es
lo oola|r ar urderslard|rg ol lre erl|ly ard |ls erv|rorrerl, |rc|ud|rg lre
erl|ly's |rlerra| corlro|, requ|red oy 3A 315

, lre aud|lor sra|| perlorr lre


procedures |r paragraprs 1Z-21 lo oola|r |rlorral|or lor use |r |derl|ly|rg
lre r|s|s ol raler|a| r|sslalererl due lo lraud.
Management and 0thers within the Entity
1Z. Tre aud|lor sra|| ra|e |rqu|r|es ol raragererl regard|rg:
(a) Varagererl's assessrerl ol lre r|s| lral lre l|rarc|a| slalererls
ray oe raler|a||y r|sslaled due lo lraud, |rc|ud|rg lre ralure, exlerl
ard lrequercy ol sucr assessrerls; (Rel: Para. A12-A13)
(o) Varagererl's process lor |derl|ly|rg ard respord|rg lo lre r|s|s ol
lraud |r lre erl|ly, |rc|ud|rg ary spec|l|c r|s|s ol lraud lral
raragererl ras |derl|l|ed or lral rave oeer orougrl lo |ls allerl|or,
or c|asses ol lrarsacl|ors, accourl oa|arces, or d|sc|osures lor Wr|cr
a r|s| ol lraud |s |||e|y lo ex|sl; (Rel: Para. A11)
(c) Varagererl's corrur|cal|or, |l ary, lo lrose crarged W|lr
goverrarce regard|rg |ls processes lor |derl|ly|rg ard respord|rg lo
lre r|s|s ol lraud |r lre erl|ly; ard
1
3A 315, paragrapr 10.
5
3A 315, paragraprs 5-23.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-37
(d) Varagererl's corrur|cal|or, |l ary, lo erp|oyees regard|rg |ls
v|eWs or ous|ress pracl|ces ard elr|ca| oerav|or.
18. Tre aud|lor sra|| ra|e |rqu|r|es ol raragererl, ard olrers W|lr|r
lre erl|ly as appropr|ale, lo delerr|re Wrelrer lrey rave |roW|edge ol ary
aclua|, suspecled or a||eged lraud allecl|rg lre erl|ly. (Rel: Para. A15-A1Z)
19. For lrose erl|l|es lral rave ar |rlerra| aud|l lurcl|or, lre aud|lor
sra|| ra|e |rqu|r|es ol |rlerra| aud|l lo delerr|re Wrelrer |l ras |roW|edge
ol ary aclua|, suspecled or a||eged lraud allecl|rg lre erl|ly, ard lo oola|r
|ls v|eWs aooul lre r|s|s ol lraud. (Rel: Para. A18)
7hose Charged with Covernance
20. ur|ess a|| ol lrose crarged W|lr goverrarce are |rvo|ved |r
rarag|rg lre erl|ly, lre aud|lor sra|| oola|r ar urderslard|rg ol roW lrose
crarged W|lr goverrarce exerc|se overs|grl ol raragererl's processes lor
|derl|ly|rg ard respord|rg lo lre r|s|s ol lraud |r lre erl|ly ard lre |rlerra|
corlro| lral raragererl ras eslao||sred lo r|l|gale lrese r|s|s. (Rel: Para.
A19-A21)
21. Tre aud|lor sra|| ra|e |rqu|r|es ol lrose crarged W|lr goverrarce lo
delerr|re Wrelrer lrey rave |roW|edge ol ary aclua|, suspecled or a||eged
lraud allecl|rg lre erl|ly. Trese |rqu|r|es are rade |r parl lo corrooorale
lre resporses lo lre |rqu|r|es ol raragererl.
0nusual or 0nexpected Relationships ldentified
22. Tre aud|lor sra|| eva|uale Wrelrer urusua| or urexpecled
re|al|orsr|ps lral rave oeer |derl|l|ed |r perlorr|rg ara|yl|ca| procedures,
|rc|ud|rg lrose re|aled lo reverue accourls, ray |rd|cale r|s|s ol raler|a|
r|sslalererl due lo lraud.
0ther lnformation
23. Tre aud|lor sra|| cors|der Wrelrer olrer |rlorral|or oola|red oy lre
aud|lor |rd|cales r|s|s ol raler|a| r|sslalererl due lo lraud. (Rel: Para.
A22)
Evaluation of Fraud Risk Factors
21. Tre aud|lor sra|| eva|uale Wrelrer lre |rlorral|or oola|red lror lre
olrer r|s| assessrerl procedures ard re|aled acl|v|l|es perlorred |rd|cales
lral ore or rore lraud r|s| laclors are preserl. wr||e lraud r|s| laclors ray
rol recessar||y |rd|cale lre ex|slerce ol lraud, lrey rave oller oeer preserl
|r c|rcurslarces Wrere lrauds rave occurred ard lrerelore ray |rd|cale
r|s|s ol raler|a| r|sslalererl due lo lraud. (Rel: Para. A23-A2Z)
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-38
|dent|f|cat|on and Assessment of the R|sks of Hater|a|
H|sstatement 0ue to Fraud
25. lr accordarce W|lr 3A 315, lre aud|lor sra|| |derl|ly ard assess lre
r|s|s ol raler|a| r|sslalererl due lo lraud al lre l|rarc|a| slalererl |eve|,
ard al lre asserl|or |eve| lor c|asses ol lrarsacl|ors, accourl oa|arces ard
d|sc|osures

.
2. wrer |derl|ly|rg ard assess|rg lre r|s|s ol raler|a| r|sslalererl
due lo lraud, lre aud|lor sra||, oased or a presurpl|or lral lrere are r|s|s ol
lraud |r reverue recogr|l|or, eva|uale Wr|cr lypes ol reverue, reverue
lrarsacl|ors or asserl|ors g|ve r|se lo sucr r|s|s. Paragrapr 1Z spec|l|es
lre docurerlal|or requ|red Wrer lre aud|lor corc|udes lral lre
presurpl|or |s rol app||cao|e |r lre c|rcurslarces ol lre ergagererl ard,
accord|rg|y, ras rol |derl|l|ed reverue recogr|l|or as a r|s| ol raler|a|
r|sslalererl due lo lraud. (Rel: Para. A28-A30)
2Z. Tre aud|lor sra|| lreal lrose assessed r|s|s ol raler|a| r|sslalererl
due lo lraud as s|gr|l|carl r|s|s ard accord|rg|y, lo lre exlerl rol a|ready
dore so, lre aud|lor sra|| oola|r ar urderslard|rg ol lre erl|ly's re|aled
corlro|s, |rc|ud|rg corlro| acl|v|l|es, re|evarl lo sucr r|s|s. (Rel: Para. A31-
A32)
Responses to the Assessed R|sks of Hater|a| H|sstatement 0ue
to Fraud
0verall Responses
28. lr accordarce W|lr 3A 330, lre aud|lor sra|| delerr|re overa||
resporses lo address lre assessed r|s|s ol raler|a| r|sslalererl due lo
lraud al lre l|rarc|a| slalererl |eve|. (Rel: Para. A33)
29. lr delerr|r|rg overa|| resporses lo address lre assessed r|s|s ol
raler|a| r|sslalererl due lo lraud al lre l|rarc|a| slalererl |eve|, lre
aud|lor sra||:
(a) Ass|gr ard superv|se persorre| la||rg accourl ol lre |roW|edge,
s|||| ard ao|||ly ol lre |rd|v|dua|s lo oe g|ver s|gr|l|carl ergagererl
respors|o|||l|es ard lre aud|lor's assessrerl ol lre r|s|s ol raler|a|
r|sslalererl due lo lraud lor lre ergagererl; (Rel: Para. A31-A35)
(o) Eva|uale Wrelrer lre se|ecl|or ard app||cal|or ol accourl|rg po||c|es
oy lre erl|ly, parl|cu|ar|y lrose re|aled lo suojecl|ve reasurererls
ard corp|ex lrarsacl|ors, ray oe |rd|cal|ve ol lraudu|erl l|rarc|a|

3A 315, Paragrapr 21.


The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-39
reporl|rg resu|l|rg lror raragererl's ellorl lo rarage earr|rgs;
ard
(c) lrcorporale ar e|ererl ol urpred|clao|||ly |r lre se|ecl|or ol lre
ralure, l|r|rg ard exlerl ol aud|l procedures. (Rel: Para. A3)
Audit Procedures Responsive to Assessed Risks of Material
Misstatement 0ue to Fraud at the Assertion Level
30. lr accordarce W|lr 3A 330, lre aud|lor sra|| des|gr ard perlorr
lurlrer aud|l procedures Wrose ralure, l|r|rg ard exlerl are respors|ve lo
lre assessed r|s|s ol raler|a| r|sslalererl due lo lraud al lre asserl|or
|eve|. (Rel: Para. A3Z-A10)
Audit Procedures Responsive to Risks Related to Management
0verride of Controls
31. Varagererl |s |r a ur|que pos|l|or lo perpelrale lraud oecause ol
raragererl's ao|||ly lo rar|pu|ale accourl|rg records ard prepare
lraudu|erl l|rarc|a| slalererls oy overr|d|rg corlro|s lral olrerW|se appear
lo oe operal|rg ellecl|ve|y. A|lrougr lre |eve| ol r|s| ol raragererl
overr|de ol corlro|s W||| vary lror erl|ly lo erl|ly, lre r|s| |s reverlre|ess
preserl |r a|| erl|l|es. 0ue lo lre urpred|clao|e Way |r Wr|cr sucr overr|de
cou|d occur, |l |s a r|s| ol raler|a| r|sslalererl due lo lraud ard lrus a
s|gr|l|carl r|s|.
32. lrrespecl|ve ol lre aud|lor's assessrerl ol lre r|s|s ol raragererl
overr|de ol corlro|s, lre aud|lor sra|| des|gr ard perlorr aud|l procedures
lo:
(a) Tesl lre appropr|aleress ol jourra| erlr|es recorded |r lre gerera|
|edger ard olrer adjuslrerls rade |r lre preparal|or ol lre l|rarc|a|
slalererls. lr des|gr|rg ard perlorr|rg aud|l procedures lor sucr
lesls, lre aud|lor sra||:
(|) Va|e |rqu|r|es ol |rd|v|dua|s |rvo|ved |r lre l|rarc|a| reporl|rg
process aooul |rappropr|ale or urusua| acl|v|ly re|al|rg lo lre
process|rg ol jourra| erlr|es ard olrer adjuslrerls;
(||) 3e|ecl jourra| erlr|es ard olrer adjuslrerls rade al lre erd
ol a reporl|rg per|od; ard
(|||) Cors|der lre reed lo lesl jourra| erlr|es ard olrer
adjuslrerls lrrougroul lre per|od. (Rel: Para. A11-A11)
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-40
(o) Rev|eW accourl|rg esl|rales

lor o|ases ard eva|uale Wrelrer lre


c|rcurslarces produc|rg lre o|as, |l ary, represerl a r|s| ol raler|a|
r|sslalererl due lo lraud. lr perlorr|rg lr|s rev|eW, lre aud|lor
sra||:
(|) Eva|uale Wrelrer lre judgrerls ard dec|s|ors rade oy
raragererl |r ra||rg lre accourl|rg esl|rales |rc|uded |r
lre l|rarc|a| slalererls, ever |l lrey are |rd|v|dua||y
reasorao|e, |rd|cale a poss|o|e o|as or lre parl ol lre erl|ly's
raragererl lral ray represerl a r|s| ol raler|a|
r|sslalererl due lo lraud. ll so, lre aud|lor sra|| re-eva|uale
lre accourl|rg esl|rales la|er as a Wro|e; ard
(||) Perlorr a relrospecl|ve rev|eW ol raragererl judgrerls
ard assurpl|ors re|aled lo s|gr|l|carl accourl|rg esl|rales
rel|ecled |r lre l|rarc|a| slalererls ol lre pr|or year

. (Rel:
Para. A15-A1)
(c) For s|gr|l|carl lrarsacl|ors lral are ouls|de lre rorra| course ol
ous|ress lor lre erl|ly, or lral olrerW|se appear lo oe urusua| g|ver
lre aud|lor's urderslard|rg ol lre erl|ly ard |ls erv|rorrerl ard
olrer |rlorral|or oola|red dur|rg lre aud|l, lre aud|lor sra|| eva|uale
Wrelrer lre ous|ress ral|ora|e (or lre |ac| lrereol) ol lre
lrarsacl|ors suggesls lral lrey ray rave oeer erlered |rlo lo
ergage |r lraudu|erl l|rarc|a| reporl|rg or lo corcea|
r|sappropr|al|or ol assels. (Rel: Para. A1Z)
33. Tre aud|lor sra|| delerr|re Wrelrer, |r order lo respord lo lre
|derl|l|ed r|s|s ol raragererl overr|de ol corlro|s, lre aud|lor reeds lo
perlorr olrer aud|l procedures |r add|l|or lo lrose spec|l|ca||y relerred lo
aoove (|.e., Wrer lrere are spec|l|c add|l|ora| r|s|s ol raragererl overr|de
lral are rol covered as parl ol lre procedures perlorred lo address lre
requ|rererls |r paragrapr 32).
Eva|uat|on of Aud|t Ev|dence (Rel: Para. A18)
31. Tre aud|lor sra|| eva|uale Wrelrer ara|yl|ca| procedures

lral are
perlorred Wrer lorr|rg ar overa|| corc|us|or as lo Wrelrer lre l|rarc|a|
Z
Relererce ray oe rade lo 3A 510, 'Aud|l|rg ol Accourl|rg Esl|rales.
8
Accourl|rg 3lardard (A3) 5, 'Nel Prol|l or Loss lor lre Per|od, Pr|or Per|od llers ard
Crarges |r Accourl|rg Po||c|es requ|res lre adjuslrerl ol lre pr|or per|od esl|rales, Wr|cr
ray allecl oolr lre per|od ol crarge |r lre Accourl|rg Esl|rales ard suosequerl per|ods, |r
lre suosequerl years.
9
Relererce ray oe rade lo 3A 520, 'Ara|yl|ca| Procedures.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-41
slalererls as a Wro|e are cors|slerl W|lr lre aud|lor's urderslard|rg ol lre
erl|ly ard |ls erv|rorrerl |rd|cale a prev|ous|y urrecogr|zed r|s| ol raler|a|
r|sslalererl due lo lraud. (Rel: Para. A19)
35. wrer lre aud|lor |derl|l|es a r|sslalererl, lre aud|lor sra|| eva|uale
Wrelrer sucr a r|sslalererl |s |rd|cal|ve ol lraud. ll lrere |s sucr ar
|rd|cal|or, lre aud|lor sra|| eva|uale lre |rp||cal|ors ol lre r|sslalererl |r
re|al|or lo olrer aspecls ol lre aud|l, parl|cu|ar|y lre re||ao|||ly ol
raragererl represerlal|ors, recogr|z|rg lral ar |rslarce ol lraud |s
ur|||e|y lo oe ar |so|aled occurrerce. (Rel: Para. A50)
3. ll lre aud|lor |derl|l|es a r|sslalererl, Wrelrer raler|a| or rol, ard
lre aud|lor ras reasor lo oe||eve lral |l |s or ray oe lre resu|l ol lraud ard
lral raragererl (|r parl|cu|ar, ser|or raragererl) |s |rvo|ved, lre aud|lor
sra|| re-eva|uale lre assessrerl ol lre r|s|s ol raler|a| r|sslalererl due
lo lraud ard |ls resu|l|rg |rpacl or lre ralure, l|r|rg ard exlerl ol aud|l
procedures lo respord lo lre assessed r|s|s. Tre aud|lor sra|| a|so
cors|der Wrelrer c|rcurslarces or cord|l|ors |rd|cale poss|o|e co||us|or
|rvo|v|rg erp|oyees, raragererl or lr|rd parl|es Wrer recors|der|rg lre
re||ao|||ly ol ev|derce prev|ous|y oola|red. (Rel: Para. A51)
3Z. wrer lre aud|lor corl|rrs lral, or |s urao|e lo corc|ude Wrelrer, lre
l|rarc|a| slalererls are raler|a||y r|sslaled as a resu|l ol lraud lre aud|lor
sra|| eva|uale lre |rp||cal|ors lor lre aud|l. (Rel: Para. A52)
Aud|tor Unab|e to 6ont|nue the Engagement
38. ll, as a resu|l ol a r|sslalererl resu|l|rg lror lraud or suspecled
lraud, lre aud|lor ercourlers excepl|ora| c|rcurslarces lral or|rg |rlo
quesl|or lre aud|lor's ao|||ly lo corl|rue perlorr|rg lre aud|l, lre aud|lor sra||:
(a) 0elerr|re lre proless|ora| ard |ega| respors|o|||l|es app||cao|e |r lre
c|rcurslarces, |rc|ud|rg Wrelrer lrere |s a requ|rererl lor lre
aud|lor lo reporl lo lre persor or persors Wro rade lre aud|l
appo|rlrerl or, |r sore cases, lo regu|alory aulror|l|es;
(o) Cors|der Wrelrer |l |s appropr|ale lo W|lrdraW lror lre ergagererl,
Wrere W|lrdraWa| lror lre ergagererl |s |ega||y perr|lled; ard
(c) ll lre aud|lor W|lrdraWs:
(|) 0|scuss W|lr lre appropr|ale |eve| ol raragererl ard lrose
crarged W|lr goverrarce, lre aud|lor's W|lrdraWa| lror lre
ergagererl ard lre reasors lor lre W|lrdraWa|; ard
(||) 0elerr|re Wrelrer lrere |s a proless|ora| or |ega|
requ|rererl lo reporl lo lre persor or persors Wro rade lre
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-42
aud|l appo|rlrerl or, |r sore cases, lo regu|alory aulror|l|es,
lre aud|lor's W|lrdraWa| lror lre ergagererl ard lre
reasors lor lre W|lrdraWa|. (Rel: Para. A53-A5)
Hanagement Representat|ons
39. Tre aud|lor sra|| oola|r Wr|ller represerlal|ors lror raragererl
lral:
(a) ll ac|roW|edges |ls respors|o|||ly lor lre des|gr, |rp|ererlal|or ard
ra|rlerarce ol |rlerra| corlro| lo preverl ard delecl lraud;
(o) ll ras d|sc|osed lo lre aud|lor lre resu|ls ol |ls assessrerl ol lre r|s|
lral lre l|rarc|a| slalererls ray oe raler|a||y r|sslaled as a resu|l
ol lraud;
(c) ll ras d|sc|osed lo lre aud|lor |ls |roW|edge ol lraud or suspecled
lraud allecl|rg lre erl|ly |rvo|v|rg:
(|) Varagererl;
(||) Erp|oyees Wro rave s|gr|l|carl ro|es |r |rlerra| corlro|; or
(|||) 0lrers Wrere lre lraud cou|d rave a raler|a| ellecl or lre
l|rarc|a| slalererls; ard
(d) ll ras d|sc|osed lo lre aud|lor |ls |roW|edge ol ary a||egal|ors ol
lraud, or suspecled lraud, allecl|rg lre erl|ly's l|rarc|a| slalererls
corrur|caled oy erp|oyees, lorrer erp|oyees, ara|ysls,
regu|alors or olrers. (Rel: Para. A5Z-A58)
6ommun|cat|ons to Hanagement and w|th Those 6harged w|th
Covernance
10. ll lre aud|lor ras |derl|l|ed a lraud or ras oola|red |rlorral|or lral
|rd|cales lral a lraud ray ex|sl, lre aud|lor sra|| corrur|cale lrese
rallers or a l|re|y oas|s lo lre appropr|ale |eve| ol raragererl |r order lo
|rlorr lrose W|lr pr|rary respors|o|||ly lor lre preverl|or ard delecl|or ol
lraud ol rallers re|evarl lo lre|r respors|o|||l|es. (Rel: Para. A59)
11. ur|ess a|| ol lrose crarged W|lr goverrarce are |rvo|ved |r
rarag|rg lre erl|ly, |l lre aud|lor ras |derl|l|ed or suspecls lraud |rvo|v|rg:
(a) Varagererl;
(o) Erp|oyees Wro rave s|gr|l|carl ro|es |r |rlerra| corlro|; or
(c) 0lrers Wrere lre lraud resu|ls |r a raler|a| r|sslalererl |r lre
l|rarc|a| slalererls.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-43
Tre aud|lor sra|| corrur|cale lrese rallers lo lrose crarged W|lr
goverrarce or a l|re|y oas|s. ll lre aud|lor suspecls lraud |rvo|v|rg
raragererl, lre aud|lor sra|| corrur|cale lrese susp|c|ors lo lrose
crarged W|lr goverrarce ard d|scuss W|lr lrer lre ralure, l|r|rg ard
exlerl ol aud|l procedures recessary lo corp|ele lre aud|l. (Rel: Para.
A0-A2)
12. lr accordarce W|lr 3A 20 (Rev|sed), 'Corrur|cal|or W|lr Trose
Crarged W|lr 0overrarce
10
, lre aud|lor sra|| corrur|cale W|lr lrose
crarged W|lr goverrarce ary olrer rallers re|aled lo lraud lral are, |r lre
aud|lor's judgrerl, re|evarl lo lre|r respors|o|||l|es. (Rel: Para. A3)
6ommun|cat|ons to Regu|atory and Enforcement Author|t|es
13. ll lre aud|lor ras |derl|l|ed or suspecls a lraud, lre aud|lor sra||
delerr|re Wrelrer lrere |s a respors|o|||ly lo reporl lre occurrerce or
susp|c|or lo a parly ouls|de lre erl|ly. A|lrougr lre aud|lor's proless|ora|
duly lo ra|rla|r lre corl|derl|a||ly ol c||erl |rlorral|or ray prec|ude sucr
reporl|rg, lre aud|lor's |ega| respors|o|||l|es ray overr|de lre duly ol
corl|derl|a||ly |r sore c|rcurslarces. (Rel: Para. A1-A)
0ocumentat|on
11. Tre aud|lor's docurerlal|or ol lre urderslard|rg ol lre erl|ly ard |ls
erv|rorrerl ard lre assessrerl ol lre r|s|s ol raler|a| r|sslalererl
requ|red oy 3A 315 sra|| |rc|ude:
(a) Tre s|gr|l|carl dec|s|ors reacred dur|rg lre d|scuss|or arorg lre
ergagererl lear regard|rg lre suscepl|o|||ly ol lre erl|ly's l|rarc|a|
slalererls lo raler|a| r|sslalererl due lo lraud; ard
(o) Tre |derl|l|ed ard assessed r|s|s ol raler|a| r|sslalererl due lo
lraud al lre l|rarc|a| slalererl |eve| ard al lre asserl|or |eve|.
15. Tre aud|lor's docurerlal|or ol lre resporses lo lre assessed r|s|s
ol raler|a| r|sslalererl requ|red oy 3A 330 sra|| |rc|ude:
(a) Tre overa|| resporses lo lre assessed r|s|s ol raler|a| r|sslalererl
due lo lraud al lre l|rarc|a| slalererl |eve| ard lre ralure, l|r|rg
ard exlerl ol aud|l procedures, ard lre ||r|age ol lrose procedures
W|lr lre assessed r|s|s ol raler|a| r|sslalererl due lo lraud al lre
asserl|or |eve|; ard
(o) Tre resu|ls ol lre aud|l procedures, |rc|ud|rg lrose des|gred lo
10
l|lrerlo |roWr as lre Aud|l|rg ard Assurarce 3lardard (AA3) 2Z, 'Corrur|cal|or ol
Aud|l Vallers W|lr Trose Crarged W|lr 0overrarce.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-44
address lre r|s| ol raragererl overr|de ol corlro|s.
1. Tre aud|lor sra|| docurerl corrur|cal|ors aooul lraud rade lo
raragererl, lrose crarged W|lr goverrarce, regu|alors ard olrers.
1Z. wrer lre aud|lor ras corc|uded lral lre presurpl|or lral lrere |s a
r|s| ol raler|a| r|sslalererl due lo lraud re|aled lo reverue recogr|l|or |s
rol app||cao|e |r lre c|rcurslarces ol lre ergagererl, lre aud|lor sra||
docurerl lre reasors lor lral corc|us|or.
App||cat|on and 0ther Exp|anatory Hater|a|
6haracter|st|cs of Fraud (Rel: Para. 3)
A1. Fraud, Wrelrer lraudu|erl l|rarc|a| reporl|rg or r|sappropr|al|or ol
assels, |rvo|ves |rcerl|ve or pressure lo corr|l lraud, a perce|ved
opporlur|ly lo do so ard sore ral|ora||zal|or ol lre acl. For exarp|e:
lrcerl|ve or pressure lo corr|l lraudu|erl l|rarc|a| reporl|rg ray ex|sl
Wrer raragererl |s urder pressure, lror sources ouls|de or |rs|de
lre erl|ly, lo acr|eve ar expecled (ard perraps urrea||sl|c) earr|rgs
largel or l|rarc|a| oulcore - parl|cu|ar|y s|rce lre corsequerces lo
raragererl lor la|||rg lo reel l|rarc|a| goa|s car oe s|gr|l|carl.
3|r||ar|y, |rd|v|dua|s ray rave ar |rcerl|ve lo r|sappropr|ale assels,
lor exarp|e, oecause lre |rd|v|dua|s are ||v|rg oeyord lre|r rears.
A perce|ved opporlur|ly lo corr|l lraud ray ex|sl Wrer ar |rd|v|dua|
oe||eves |rlerra| corlro| car oe overr|dder, lor exarp|e, oecause lre
|rd|v|dua| |s |r a pos|l|or ol lrusl or ras |roW|edge ol spec|l|c
Wea|resses |r |rlerra| corlro|.
lrd|v|dua|s ray oe ao|e lo ral|ora||ze corr|ll|rg a lraudu|erl acl.
3ore |rd|v|dua|s possess ar all|lude, craracler or sel ol elr|ca| va|ues
lral a||oW lrer |roW|rg|y ard |rlerl|ora||y lo corr|l a d|sroresl acl.
loWever, ever olrerW|se roresl |rd|v|dua|s car corr|l lraud |r ar
erv|rorrerl lral |rposes sull|c|erl pressure or lrer.
A2. Fraudu|erl l|rarc|a| reporl|rg |rvo|ves |rlerl|ora| r|sslalererls
|rc|ud|rg or|ss|ors ol arourls or d|sc|osures |r l|rarc|a| slalererls lo
dece|ve l|rarc|a| slalererl users. ll car oe caused oy lre ellorls ol
raragererl lo rarage earr|rgs |r order lo dece|ve l|rarc|a| slalererl
users oy |rl|uerc|rg lre|r percepl|ors as lo lre erl|ly's perlorrarce ard
prol|lao|||ly. 3ucr earr|rgs raragererl ray slarl oul W|lr sra|| acl|ors or
|rappropr|ale adjuslrerl ol assurpl|ors ard crarges |r judgrerls oy
raragererl. Pressures ard |rcerl|ves ray |ead lrese acl|ors lo |rcrease
lo lre exlerl lral lrey resu|l |r lraudu|erl l|rarc|a| reporl|rg. 3ucr a
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-45
s|lual|or cou|d occur Wrer, due lo pressures lo reel rar|el expeclal|ors or
a des|re lo rax|r|ze corpersal|or oased or perlorrarce, raragererl
|rlerl|ora||y la|es pos|l|ors lral |ead lo lraudu|erl l|rarc|a| reporl|rg oy
raler|a||y r|sslal|rg lre l|rarc|a| slalererls. lr sore erl|l|es,
raragererl ray oe rol|valed lo reduce earr|rgs oy a raler|a| arourl lo
r|r|r|ze lax or lo |rl|ale earr|rgs lo secure oar| l|rarc|rg.
A3. Fraudu|erl l|rarc|a| reporl|rg ray oe accorp||sred oy lre lo||oW|rg:
Var|pu|al|or, la|s|l|cal|or (|rc|ud|rg lorgery), or a|leral|or ol accourl|rg
records or supporl|rg docurerlal|or lror Wr|cr lre l|rarc|a|
slalererls are prepared.
V|srepreserlal|or |r or |rlerl|ora| or|ss|or lror, lre l|rarc|a|
slalererls ol everls, lrarsacl|ors or olrer s|gr|l|carl |rlorral|or.
lrlerl|ora| r|sapp||cal|or ol accourl|rg pr|rc|p|es re|al|rg lo arourls,
c|ass|l|cal|or, rarrer ol preserlal|or, or d|sc|osure.
A1. Fraudu|erl l|rarc|a| reporl|rg oller |rvo|ves raragererl overr|de ol
corlro|s lral olrerW|se ray appear lo oe operal|rg ellecl|ve|y. Fraud car
oe corr|lled oy raragererl overr|d|rg corlro|s us|rg sucr lecrr|ques as:
Record|rg l|cl|l|ous jourra| erlr|es, parl|cu|ar|y c|ose lo lre erd ol ar
accourl|rg per|od, lo rar|pu|ale operal|rg resu|ls or acr|eve olrer
oojecl|ves.
lrappropr|ale|y adjusl|rg assurpl|ors ard crarg|rg judgrerls used lo
esl|rale accourl oa|arces.
0r|ll|rg, advarc|rg or de|ay|rg recogr|l|or |r lre l|rarc|a| slalererls
ol everls ard lrarsacl|ors lral rave occurred dur|rg lre reporl|rg
per|od.
Corcea||rg, or rol d|sc|os|rg, lacls lral cou|d allecl lre arourls
recorded |r lre l|rarc|a| slalererls.
Ergag|rg |r corp|ex lrarsacl|ors lral are slruclured lo r|srepreserl
lre l|rarc|a| pos|l|or or l|rarc|a| perlorrarce ol lre erl|ly.
A|ler|rg records ard lerrs re|aled lo s|gr|l|carl ard urusua|
lrarsacl|ors.
A5. V|sappropr|al|or ol assels |rvo|ves lre lrell ol ar erl|ly's assels
ard |s oller perpelraled oy erp|oyees |r re|al|ve|y sra|| ard |rraler|a|
arourls. loWever, |l car a|so |rvo|ve raragererl Wro are usua||y
rore ao|e lo d|sgu|se or corcea| r|sappropr|al|ors |r Ways lral are
d|ll|cu|l lo delecl. V|sappropr|al|or ol assels car oe accorp||sred |r a
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-46
var|ely ol Ways |rc|ud|rg:
Eroezz||rg rece|pls (lor exarp|e, r|sappropr|al|rg co||ecl|ors or
accourls rece|vao|e or d|verl|rg rece|pls |r respecl ol Wr|ller-oll
accourls lo persora| oar| accourls).
3lea||rg prys|ca| assels or |rle||eclua| properly (lor exarp|e, slea||rg
|rverlory lor persora| use or lor sa|e, slea||rg scrap lor resa|e, co||ud|rg
W|lr a corpel|lor oy d|sc|os|rg lecrro|og|ca| dala |r relurr lor
payrerl).
Caus|rg ar erl|ly lo pay lor goods ard serv|ces rol rece|ved (lor
exarp|e, payrerls lo l|cl|l|ous verdors, ||c|oac|s pa|d oy verdors lo
lre erl|ly's purcras|rg agerls |r relurr lor |rl|al|rg pr|ces, payrerls lo
l|cl|l|ous erp|oyees).
us|rg ar erl|ly's assels lor persora| use (lor exarp|e, us|rg lre erl|ly's
assels as co||alera| lor a persora| |oar or a |oar lo a re|aled parly).
V|sappropr|al|or ol assels |s oller accorpar|ed oy la|se or r|s|ead|rg
records or docurerls |r order lo corcea| lre lacl lral lre assels are r|ss|rg
or rave oeer p|edged W|lroul proper aulror|zal|or.
A. Tre aud|lor ray, al l|res, oe requ|red lo oy a |eg|s|al|or or a
regu|al|or lo ra|e a spec|l|c asserl|or |r respecl ol lrauds or/oy lre erl|ly |r
r|s reporl. For exarp|e, C|ause (xx|) ol Paragrapr 1 ol lre Corpar|es
(Aud|lor's Reporl) 0rder, 2003 requ|res lre aud|lor lo spec|l|ca||y reporl
'Wrelrer ary lraud or or oy lre erl|ly ras oeer rol|ced or reporled dur|rg
lre year; |l yes, lre ralure ard arourl |rvo|ved |s lo oe |rd|caled. 3|r||ar|y,
|r case ol aud|l ol oar|s, lre aud|lors, |r lerrs ol lre c|rcu|ar ro.
083.F0v.(F).No. 8C/23.08.001/2001-02, |s requ|red lo reporl lo lre
Reserve 8ar| ol lrd|a arylr|rg suscepl|o|e lo lraud or lraudu|erl acl|v|ly or
acl ol excess poWer or ary lou| p|ay |r ary lrarsacl|or. Corsequerl|y, |r
sucr cases, lre aud|lor's respors|o|||l|es ray rol oe ||r|led lo cors|deral|or
ol r|s|s ol raler|a| r|sslalererl ol lre l|rarc|a| slalererls, oul ray a|so
|rc|ude a oroader respors|o|||ly lo cors|der r|s|s ol lraud.
Profess|ona| 8kept|c|sm (Rel: Para. 12-11)
AZ. Proless|ora| s|epl|c|sr |s ar all|lude lral |rc|udes a quesl|or|rg
r|rd ard a cr|l|ca| assessrerl ol aud|l ev|derce. Va|rla|r|rg ar all|lude ol
proless|ora| s|epl|c|sr requ|res ar orgo|rg quesl|or|rg ol Wrelrer lre
|rlorral|or ard aud|l ev|derce oola|red suggesls lral a raler|a|
r|sslalererl due lo lraud ray ex|sl. ll |rc|udes cors|der|rg lre re||ao|||ly ol
lre |rlorral|or lo oe used as aud|l ev|derce ard lre corlro|s over |ls
preparal|or ard ra|rlerarce Wrere re|evarl. 0ue lo lre craracler|sl|cs ol
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-47
lraud, lre aud|lor's all|lude ol proless|ora| s|epl|c|sr |s parl|cu|ar|y
|rporlarl Wrer cors|der|rg lre r|s|s ol raler|a| r|sslalererl due lo lraud.
A8. A|lrougr lre aud|lor carrol oe expecled lo d|sregard pasl
exper|erce ol lre roresly ard |rlegr|ly ol lre erl|ly's raragererl ard
lrose crarged W|lr goverrarce, lre aud|lor's all|lude ol proless|ora|
s|epl|c|sr |s parl|cu|ar|y |rporlarl |r cors|der|rg lre r|s|s ol raler|a|
r|sslalererl due lo lraud oecause lrere ray rave oeer crarges |r
c|rcurslarces.
A9. As exp|a|red |r 3A 200, ar aud|l perlorred |r accordarce W|lr 3As
rare|y |rvo|ves lre aulrerl|cal|or ol docurerls, ror |s lre aud|lor lra|red as
or expecled lo oe ar experl |r sucr aulrerl|cal|or. loWever, Wrer lre
aud|lor |derl|l|es cord|l|ors lral cause lre aud|lor lo oe||eve lral a
docurerl ray rol oe aulrerl|c or lral lerrs |r a docurerl rave oeer
rod|l|ed oul rol d|sc|osed lo lre aud|lor, poss|o|e procedures lo |rvesl|gale
lurlrer ray |rc|ude:
Corl|rr|rg d|recl|y W|lr lre lr|rd parly.
us|rg lre Wor| ol ar experl lo assess lre docurerl's aulrerl|c|ly.
0|scuss|on Among the Engagement Team (Rel: Para. 15)
A10. 0|scuss|rg lre suscepl|o|||ly ol lre erl|ly's l|rarc|a| slalererls lo
raler|a| r|sslalererl due lo lraud W|lr lre ergagererl lear:
Prov|des ar opporlur|ly lor rore exper|erced ergagererl lear
reroers lo srare lre|r |rs|grls aooul roW ard Wrere lre l|rarc|a|
slalererls ray oe suscepl|o|e lo raler|a| r|sslalererl due lo lraud.
Erao|es lre aud|lor lo cors|der ar appropr|ale resporse lo sucr
suscepl|o|||ly ard lo delerr|re Wr|cr reroers ol lre ergagererl lear
W||| corducl cerla|r aud|l procedures.
Perr|ls lre aud|lor lo delerr|re roW lre resu|ls ol aud|l procedures W|||
oe srared arorg lre ergagererl lear ard roW lo dea| W|lr ary
a||egal|ors ol lraud lral ray core lo lre aud|lor's allerl|or.
A11. Tre d|scuss|or ray |rc|ude sucr rallers as:
Ar excrarge ol |deas arorg ergagererl lear reroers aooul roW
ard Wrere lrey oe||eve lre erl|ly's l|rarc|a| slalererls ray oe
suscepl|o|e lo raler|a| r|sslalererl due lo lraud, roW raragererl
cou|d perpelrale ard corcea| lraudu|erl l|rarc|a| reporl|rg, ard roW
assels ol lre erl|ly cou|d oe r|sappropr|aled.
A cors|deral|or ol c|rcurslarces lral r|grl oe |rd|cal|ve ol earr|rgs
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-48
raragererl ard lre pracl|ces lral r|grl oe lo||oWed oy raragererl
lo rarage earr|rgs lral cou|d |ead lo lraudu|erl l|rarc|a| reporl|rg.
A cors|deral|or ol lre |roWr exlerra| ard |rlerra| laclors allecl|rg lre
erl|ly lral ray creale ar |rcerl|ve or pressure lor raragererl or
olrers lo corr|l lraud, prov|de lre opporlur|ly lor lraud lo oe
perpelraled, ard |rd|cale a cu|lure or erv|rorrerl lral erao|es
raragererl or olrers lo ral|ora||ze corr|ll|rg lraud.
A cors|deral|or ol raragererl's |rvo|vererl |r oversee|rg erp|oyees
W|lr access lo casr or olrer assels suscepl|o|e lo r|sappropr|al|or.
A cors|deral|or ol ary urusua| or urexp|a|red crarges |r oerav|or or
||lesly|e ol raragererl or erp|oyees Wr|cr rave core lo lre allerl|or
ol lre ergagererl lear.
Ar erpras|s or lre |rporlarce ol ra|rla|r|rg a proper slale ol r|rd
lrrougroul lre aud|l regard|rg lre polerl|a| lor raler|a| r|sslalererl
due lo lraud.
A cors|deral|or ol lre lypes ol c|rcurslarces lral, |l ercourlered, r|grl
|rd|cale lre poss|o|||ly ol lraud.
A cors|deral|or ol roW ar e|ererl ol urpred|clao|||ly W||| oe
|rcorporaled |rlo lre ralure, l|r|rg ard exlerl ol lre aud|l procedures
lo oe perlorred.
A cors|deral|or ol lre aud|l procedures lral r|grl oe se|ecled lo
respord lo lre suscepl|o|||ly ol lre erl|ly's l|rarc|a| slalererl lo
raler|a| r|sslalererl due lo lraud ard Wrelrer cerla|r lypes ol aud|l
procedures are rore ellecl|ve lrar olrers.
A cors|deral|or ol ary a||egal|ors ol lraud lral rave core lo lre
aud|lor's allerl|or.
A cors|deral|or ol lre r|s| ol raragererl overr|de ol corlro|s.
R|sk Assessment Procedures and Re|ated Act|v|t|es
lnquiries of Management
Vanagemenrs /ssessmenr ol rne R|sk ol Varer|a| V|ssraremenr 0ue ro
Frauo [Rel: Para. 1Z(a)|
A12. Varagererl |s respors|o|e lor lre erl|ly's |rlerra| corlro| ard lor lre
preparal|or ol lre l|rarc|a| slalererls. Accord|rg|y, |l |s appropr|ale lor lre
aud|lor lo ra|e |rqu|r|es ol raragererl regard|rg raragererl's oWr
assessrerl ol lre r|s| ol lraud ard lre corlro|s |r p|ace lo preverl ard
delecl |l. Tre ralure, exlerl ard lrequercy ol raragererl's assessrerl ol
sucr r|s| ard corlro|s ray vary lror erl|ly lo erl|ly. lr sore erl|l|es,
raragererl ray ra|e dela||ed assessrerls or ar arrua| oas|s or as parl
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-49
ol corl|ruous ror|lor|rg. lr olrer erl|l|es, raragererl's assessrerl ray
oe |ess slruclured ard |ess lrequerl. Tre ralure, exlerl ard lrequercy ol
raragererl's assessrerl are re|evarl lo lre aud|lor's urderslard|rg ol
lre erl|ly's corlro| erv|rorrerl. For exarp|e, lre lacl lral raragererl
ras rol rade ar assessrerl ol lre r|s| ol lraud ray |r sore
c|rcurslarces oe |rd|cal|ve ol lre |ac| ol |rporlarce lral raragererl
p|aces or |rlerra| corlro|.
0ons|oerar|ons spec|l|c ro sma||er enr|r|es
A13. lr sore erl|l|es, parl|cu|ar|y sra||er erl|l|es, lre locus ol
raragererl's assessrerl ray oe or lre r|s|s ol erp|oyee lraud or
r|sappropr|al|or ol assels.
Vanagemenrs Process lor loenr|l,|ng ano Respono|ng ro rne R|sks ol Frauo
(Rel: Para. 1Z(o))
A11. lr lre case ol erl|l|es W|lr ru|l|p|e |ocal|ors raragererl's
processes ray |rc|ude d|llererl |eve|s ol ror|lor|rg ol operal|rg |ocal|ors,
or ous|ress segrerls. Varagererl ray a|so rave |derl|l|ed parl|cu|ar
operal|rg |ocal|ors or ous|ress segrerls lor Wr|cr a r|s| ol lraud ray oe
rore |||e|y lo ex|sl.
lnquiry of Management and 0thers within the Entity (Rel: Para. 18)
A15. Tre aud|lor's |rqu|r|es ol raragererl ray prov|de uselu|
|rlorral|or corcerr|rg lre r|s|s ol raler|a| r|sslalererls |r lre l|rarc|a|
slalererls resu|l|rg lror erp|oyee lraud. loWever, sucr |rqu|r|es are
ur|||e|y lo prov|de uselu| |rlorral|or regard|rg lre r|s|s ol raler|a|
r|sslalererl |r lre l|rarc|a| slalererls resu|l|rg lror raragererl lraud.
Va||rg |rqu|r|es ol olrers W|lr|r lre erl|ly ray prov|de |rd|v|dua|s W|lr ar
opporlur|ly lo corvey |rlorral|or lo lre aud|lor lral ray rol olrerW|se oe
corrur|caled.
A1. Exarp|es ol olrers W|lr|r lre erl|ly lo Wror lre aud|lor ray d|recl
|rqu|r|es aooul lre ex|slerce or susp|c|or ol lraud |rc|ude:
0peral|rg persorre| rol d|recl|y |rvo|ved |r lre l|rarc|a| reporl|rg
process.
Erp|oyees W|lr d|llererl |eve|s ol aulror|ly.
Erp|oyees |rvo|ved |r |r|l|al|rg, process|rg or record|rg corp|ex or
urusua| lrarsacl|ors ard lrose Wro superv|se or ror|lor sucr
erp|oyees.
lr-rouse |ega| course|.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-50
Cr|el elr|cs oll|cer or equ|va|erl persor.
Tre persor or persors crarged W|lr dea||rg W|lr a||egal|ors ol lraud.
A1Z. Varagererl |s oller |r lre oesl pos|l|or lo perpelrale lraud.
Accord|rg|y, Wrer eva|ual|rg raragererl's resporses lo |rqu|r|es W|lr ar
all|lude ol proless|ora| s|epl|c|sr, lre aud|lor ray judge |l recessary lo
corrooorale resporses lo |rqu|r|es W|lr olrer |rlorral|or.
lnquiry of lnternal Audit (Rel: Para. 19)
A18. 3A 10, 'Cors|der|rg lre wor| ol lrlerra| Aud|l
11
, eslao||sres
requ|rererls ard prov|des gu|darce |r aud|ls ol lrose erl|l|es lral rave ar
|rlerra| aud|l lurcl|or. lr carry|rg oul lre requ|rererl ol 3A 10 |r lre
corlexl ol lraud, lre aud|lor ray |rqu|re aooul spec|l|c |rlerra| aud|l
acl|v|l|es |rc|ud|rg, lor exarp|e:
Tre procedures perlorred, |l ary, oy lre |rlerra| aud|lors dur|rg lre
year lo delecl lraud.
wrelrer raragererl ras sal|slaclor||y resporded lo ary l|rd|rgs
resu|l|rg lror lrose procedures.
0btaining an 0nderstanding of 0versight Exercised by 7hose Charged
with Covernance (Rel: Para. 20)
A19. Trose crarged W|lr goverrarce ol ar erl|ly rave overs|grl
respors|o|||ly lor syslers lor ror|lor|rg r|s|, l|rarc|a| corlro| ard
corp||arce W|lr lre |aW. lr rary erl|l|es, corporale goverrarce pracl|ces
are We|| deve|oped ard lrose crarged W|lr goverrarce p|ay ar acl|ve ro|e |r
overs|grl ol lre erl|ly's assessrerl ol lre r|s|s ol lraud ard ol lre re|evarl
|rlerra| corlro|. 3|rce lre respors|o|||l|es ol lrose crarged W|lr goverrarce
ard raragererl ray vary oy erl|ly, |l |s |rporlarl lral lre aud|lor
urderslards lre|r respecl|ve respors|o|||l|es lo erao|e lre aud|lor lo oola|r
ar urderslard|rg ol lre overs|grl exerc|sed oy lre appropr|ale |rd|v|dua|s.
12
A20. Ar urderslard|rg ol lre overs|grl exerc|sed oy lrose crarged W|lr
goverrarce ray prov|de |rs|grls regard|rg lre suscepl|o|||ly ol lre erl|ly lo
raragererl lraud, lre adequacy ol |rlerra| corlro| over r|s|s ol lraud, ard
lre corpelercy ard |rlegr|ly ol raragererl. Tre aud|lor ray oola|r lr|s
urderslard|rg |r a ruroer ol Ways, sucr as oy allerd|rg reel|rgs Wrere
11
l|lrerlo |roWr as Aud|l|rg ard Assurarce 3lardard (AA3) Z, 'Re|y|rg upor lre wor| ol
ar lrlerra| Aud|lor.
12
3A 20 (Rev|sed), 'Corrur|cal|or W|lr Trose Crarged W|lr 0overrarce, d|scusses W|lr
Wror lre aud|lor corrur|cales Wrer lre erl|ly's goverrarce slruclure |s rol We|| del|red.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-51
sucr d|scuss|ors la|e p|ace, read|rg lre r|rules lror sucr reel|rgs or
ra||rg |rqu|r|es ol lrose crarged W|lr goverrarce.
Considerations 3pecific to 3maller Entities
A21. lr sore cases, a|| ol lrose crarged W|lr goverrarce are |rvo|ved |r
rarag|rg lre erl|ly. Tr|s ray oe lre case |r a sra|| erl|ly Wrere a s|rg|e
oWrer rarages lre erl|ly ard ro ore e|se ras a goverrarce ro|e. lr lrese
cases, lrere |s ord|rar||y ro acl|or or lre parl ol lre aud|lor oecause lrere |s
ro overs|grl separale lror raragererl.
Consideration of 0ther lnformation (Rel: Para. 23)
A22. lr add|l|or lo |rlorral|or oola|red lror app|y|rg ara|yl|ca|
procedures, olrer |rlorral|or oola|red aooul lre erl|ly ard |ls erv|rorrerl
ray oe re|plu| |r |derl|ly|rg lre r|s|s ol raler|a| r|sslalererl due lo lraud.
Tre d|scuss|or arorg lear reroers ray prov|de |rlorral|or lral |s
re|plu| |r |derl|ly|rg sucr r|s|s. lr add|l|or, |rlorral|or oola|red lror lre
aud|lor's c||erl acceplarce ard relerl|or processes, ard exper|erce ga|red
or olrer ergagererls perlorred lor lre erl|ly, lor exarp|e ergagererls lo
rev|eW |rler|r l|rarc|a| |rlorral|or, ray oe re|evarl |r lre |derl|l|cal|or ol
lre r|s|s ol raler|a| r|sslalererl due lo lraud.
Evaluation of Fraud Risk Factors (Rel: Para. 21)
A23. Tre lacl lral lraud |s usua||y corcea|ed car ra|e |l very d|ll|cu|l lo
delecl. Neverlre|ess, lre aud|lor ray |derl|ly everls or cord|l|ors lral
|rd|cale ar |rcerl|ve or pressure lo corr|l lraud or prov|de ar opporlur|ly
lo corr|l lraud (lraud r|s| laclors). For exarp|e:
Tre reed lo reel expeclal|ors ol lr|rd parl|es lo oola|r add|l|ora|
equ|ly l|rarc|rg ray creale pressure lo corr|l lraud;
Tre grarl|rg ol s|gr|l|carl ooruses |l urrea||sl|c prol|l largels are rel
ray creale ar |rcerl|ve lo corr|l lraud; ard
A corlro| erv|rorrerl lral |s rol ellecl|ve ray creale ar opporlur|ly lo
corr|l lraud.
A21. Fraud r|s| laclors carrol eas||y oe rar|ed |r order ol |rporlarce.
Tre s|gr|l|carce ol lraud r|s| laclors var|es W|de|y. 3ore ol lrese laclors
W||| oe preserl |r erl|l|es Wrere lre spec|l|c cord|l|ors do rol preserl r|s|s
ol raler|a| r|sslalererl. Accord|rg|y, lre delerr|ral|or ol Wrelrer a lraud
r|s| laclor |s preserl ard Wrelrer |l |s lo oe cors|dered |r assess|rg lre
r|s|s ol raler|a| r|sslalererl ol lre l|rarc|a| slalererls due lo lraud
requ|res lre exerc|se ol proless|ora| judgrerl.
A25. Exarp|es ol lraud r|s| laclors re|aled lo lraudu|erl l|rarc|a| reporl|rg
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-52
ard r|sappropr|al|or ol assels are preserled |r Apperd|x 1. Trese
|||uslral|ve r|s| laclors are c|ass|l|ed oased or lre lrree cord|l|ors lral are
gerera||y preserl Wrer lraud ex|sls:
Ar |rcerl|ve or pressure lo corr|l lraud;
A perce|ved opporlur|ly lo corr|l lraud; ard
Ar ao|||ly lo ral|ora||ze lre lraudu|erl acl|or.
R|s| laclors rel|ecl|ve ol ar all|lude lral perr|ls ral|ora||zal|or ol lre
lraudu|erl acl|or ray rol oe suscepl|o|e lo ooserval|or oy lre
aud|lor. Neverlre|ess, lre aud|lor ray oecore aWare ol lre
ex|slerce ol sucr |rlorral|or. A|lrougr lre lraud r|s| laclors
descr|oed |r Apperd|x 1 cover a oroad rarge ol s|lual|ors lral ray
oe laced oy aud|lors, lrey are or|y exarp|es ard olrer r|s| laclors
ray ex|sl.
A2. Tre s|ze, corp|ex|ly, ard oWrersr|p craracler|sl|cs ol lre erl|ly rave
a s|gr|l|carl |rl|uerce or lre cors|deral|or ol re|evarl lraud r|s| laclors. For
exarp|e, |r lre case ol a |arge erl|ly, lrere ray oe laclors lral gerera||y
corslra|r |rproper corducl oy raragererl, sucr as:
Ellecl|ve overs|grl oy lrose crarged W|lr goverrarce.
Ar ellecl|ve |rlerra| aud|l lurcl|or.
Tre ex|slerce ard erlorcererl ol a Wr|ller code ol corducl.
Furlrerrore, lraud r|s| laclors cors|dered al a ous|ress segrerl operal|rg
|eve| ray prov|de d|llererl |rs|grls Wrer corpared W|lr lrose oola|red
Wrer cors|dered al ar erl|ly-W|de |eve|.
0ons|oerar|ons $pec|l|c ro $ma||er Enr|r|es
A2Z. lr lre case ol a sra|| erl|ly, sore or a|| ol lrese cors|deral|ors
ray oe |rapp||cao|e or |ess re|evarl. For exarp|e, a sra||er erl|ly ray
rol rave a Wr|ller code ol corducl oul, |rslead, ray rave deve|oped a
cu|lure lral erpras|zes lre |rporlarce ol |rlegr|ly ard elr|ca| oerav|or
lrrougr ora| corrur|cal|or ard oy raragererl exarp|e. 0or|ral|or
ol raragererl oy a s|rg|e |rd|v|dua| |r a sra|| erl|ly does rol
gerera||y, |r ard ol |lse|l, |rd|cale a la||ure oy raragererl lo d|sp|ay
ard corrur|cale ar appropr|ale all|lude regard|rg |rlerra| corlro| ard
lre l|rarc|a| reporl|rg process. lr sore erl|l|es, lre reed lor
raragererl aulror|zal|or car corpersale lor olrerW|se Wea| corlro|s
ard reduce lre r|s| ol erp|oyee lraud. loWever, dor|ral|or ol
raragererl oy a s|rg|e |rd|v|dua| car oe a polerl|a| Wea|ress s|rce
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-53
lrere |s ar opporlur|ly lor raragererl overr|de ol corlro|s.
|dent|f|cat|on and Assessment of the R|sks of Hater|a|
H|sstatement 0ue to Fraud
Risks of Fraud in Revenue Recognition (Rel: Para. 2)
A28. Valer|a| r|sslalererl due lo lraudu|erl l|rarc|a| reporl|rg re|al|rg lo
reverue recogr|l|or oller resu|ls lror ar overslalererl ol reverues
lrrougr, lor exarp|e, preralure reverue recogr|l|or or record|rg l|cl|l|ous
reverues. ll ray resu|l a|so lror ar urderslalererl ol reverues lrrougr,
lor exarp|e, |rproper|y sr|ll|rg reverues lo a |aler per|od.
A29. Tre r|s|s ol lraud |r reverue recogr|l|or ray oe grealer |r sore
erl|l|es lrar olrers. For exarp|e, lrere ray oe pressures or |rcerl|ves or
raragererl lo corr|l lraudu|erl l|rarc|a| reporl|rg lrrougr |rappropr|ale
reverue recogr|l|or |r lre case ol ||sled erl|l|es Wrer, lor exarp|e,
perlorrarce |s reasured |r lerrs ol year-over-year reverue groWlr or
prol|l. 3|r||ar|y, lor exarp|e, lrere ray oe grealer r|s|s ol lraud |r reverue
recogr|l|or |r lre case ol erl|l|es lral gererale a suoslarl|a| porl|or ol
reverues lrrougr casr sa|es.
A30. Tre presurpl|or lral lrere are r|s|s ol lraud |r reverue recogr|l|or
ray oe reoulled. For exarp|e, lre aud|lor ray corc|ude lral lrere |s ro
r|s| ol raler|a| r|sslalererl due lo lraud re|al|rg lo reverue recogr|l|or |r
lre case Wrere lrere |s a s|rg|e lype ol s|rp|e reverue lrarsacl|or, lor
exarp|e, |easero|d reverue lror a s|rg|e ur|l rerla| properly.
ldentifying and Assessing the Risks of Material Misstatement 0ue to
Fraud and 0nderstanding the Entity's Related Controls (Rel: Para. 2Z)
A31. As exp|a|red |r 3A 315 raragererl ray ra|e judgrerls or lre
ralure ard exlerl ol lre corlro|s |l crooses lo |rp|ererl, ard lre ralure
ard exlerl ol lre r|s|s |l crooses lo assure. lr delerr|r|rg Wr|cr corlro|s
lo |rp|ererl lo preverl ard delecl lraud, raragererl cors|ders lre r|s|s
lral lre l|rarc|a| slalererls ray oe raler|a||y r|sslaled as a resu|l ol
lraud. As parl ol lr|s cors|deral|or, raragererl ray corc|ude lral |l |s rol
cosl ellecl|ve lo |rp|ererl ard ra|rla|r a parl|cu|ar corlro| |r re|al|or lo lre
reducl|or |r lre r|s|s ol raler|a| r|sslalererl due lo lraud lo oe acr|eved.
A32. ll |s lrerelore |rporlarl lor lre aud|lor lo oola|r ar urderslard|rg ol
lre corlro|s lral raragererl ras des|gred, |rp|ererled ard ra|rla|red
lo preverl ard delecl lraud. lr do|rg so, lre aud|lor ray |earr, lor exarp|e,
lral raragererl ras corsc|ous|y croser lo accepl lre r|s|s assoc|aled
W|lr a |ac| ol segregal|or ol dul|es. lrlorral|or lror oola|r|rg lr|s
urderslard|rg ray a|so oe uselu| |r |derl|ly|rg lraud r|s|s laclors lral ray
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-54
allecl lre aud|lor's assessrerl ol lre r|s|s lral lre l|rarc|a| slalererls ray
corla|r raler|a| r|sslalererl due lo lraud.
Responses to the Assessed R|sks of Hater|a| H|sstatement 0ue
to Fraud
0verall Responses (Rel: Para. 28)
A33. 0elerr|r|rg overa|| resporses lo address lre assessed r|s|s ol
raler|a| r|sslalererl due lo lraud gerera||y |rc|udes lre cors|deral|or ol
roW lre overa|| corducl ol lre aud|l car rel|ecl |rcreased proless|ora|
s|epl|c|sr, lor exarp|e, lrrougr:
lrcreased sers|l|v|ly |r lre se|ecl|or ol lre ralure ard exlerl ol
docurerlal|or lo oe exar|red |r supporl ol raler|a| lrarsacl|ors.
lrcreased recogr|l|or ol lre reed lo corrooorale raragererl
exp|aral|ors or represerlal|ors corcerr|rg raler|a| rallers.
ll a|so |rvo|ves rore gerera| cors|deral|ors aparl lror lre spec|l|c
procedures olrerW|se p|arred; lrese cors|deral|ors |rc|ude lre
rallers ||sled |r paragrapr 29, Wr|cr are d|scussed oe|oW.
Assignment and 3upervision of Personnel (Rel: Para. 29(a))
A31. Tre aud|lor ray respord lo |derl|l|ed r|s|s ol raler|a| r|sslalererl
due lo lraud oy, lor exarp|e, ass|gr|rg add|l|ora| |rd|v|dua|s W|lr
spec|a||zed s|||| ard |roW|edge, sucr as lorers|c ard lT experls, or oy
ass|gr|rg rore exper|erced |rd|v|dua|s lo lre ergagererl.
A35. Tre exlerl ol superv|s|or rel|ecls lre aud|lor's assessrerl ol r|s|s ol
raler|a| r|sslalererl due lo lraud ard lre corpelerc|es ol lre
ergagererl lear reroers perlorr|rg lre Wor|.
0npredictability in the 3election of Audit Procedures (Rel: Para.
29(c))
A3. lrcorporal|rg ar e|ererl ol urpred|clao|||ly |r lre se|ecl|or ol lre
ralure, l|r|rg ard exlerl ol aud|l procedures lo oe perlorred |s |rporlarl
as |rd|v|dua|s W|lr|r lre erl|ly Wro are lar|||ar W|lr lre aud|l procedures
rorra||y perlorred or ergagererls ray oe rore ao|e lo corcea|
lraudu|erl l|rarc|a| reporl|rg. Tr|s car oe acr|eved oy, lor exarp|e:
Perlorr|rg suoslarl|ve procedures or se|ecled accourl oa|arces ard
asserl|ors rol olrerW|se lesled due lo lre|r raler|a||ly or r|s|.
Adjusl|rg lre l|r|rg ol aud|l procedures lror lral olrerW|se expecled.
us|rg d|llererl sarp||rg relrods.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-55
Perlorr|rg aud|l procedures al d|llererl |ocal|ors or al |ocal|ors or ar
urarrourced oas|s.
Audit Procedures Responsive to Assessed Risks of Material
Misstatement 0ue to Fraud at the Assertion Level (Rel: Para. 30)
A3Z. Tre aud|lor's resporses lo address lre assessed r|s|s ol raler|a|
r|sslalererl due lo lraud al lre asserl|or |eve| ray |rc|ude crarg|rg lre
ralure, l|r|rg, ard exlerl ol aud|l procedures |r lre lo||oW|rg Ways:
Tre ralure ol aud|l procedures lo oe perlorred ray reed lo oe
crarged lo oola|r aud|l ev|derce lral |s rore re||ao|e ard re|evarl or lo
oola|r add|l|ora| corroooral|ve |rlorral|or. Tr|s ray allecl oolr lre
lype ol aud|l procedures lo oe perlorred ard lre|r coro|ral|or. For
exarp|e:
Prys|ca| ooserval|or or |rspecl|or ol cerla|r assels ray
oecore rore |rporlarl or lre aud|lor ray croose lo use
corpuler-ass|sled aud|l lecrr|ques lo galrer rore ev|derce
aooul dala corla|red |r s|gr|l|carl accourls or e|eclror|c
lrarsacl|or l||es.
Tre aud|lor ray des|gr procedures lo oola|r add|l|ora|
corroooral|ve |rlorral|or. For exarp|e, |l lre aud|lor |derl|l|es
lral raragererl |s urder pressure lo reel earr|rgs
expeclal|ors, lrere ray oe a re|aled r|s| lral raragererl |s
|rl|al|rg sa|es oy erler|rg |rlo sa|es agreererls lral |rc|ude
lerrs lral prec|ude reverue recogr|l|or or oy |rvo|c|rg sa|es
oelore de||very. lr lrese c|rcurslarces, lre aud|lor ray, lor
exarp|e, des|gr exlerra| corl|rral|ors rol or|y lo corl|rr
oulslard|rg arourls, oul a|so lo corl|rr lre dela||s ol lre
sa|es agreererls, |rc|ud|rg dale, ary r|grls ol relurr ard
de||very lerrs. lr add|l|or, lre aud|lor r|grl l|rd |l ellecl|ve lo
supp|ererl sucr exlerra| corl|rral|ors W|lr |rqu|r|es ol ror-
l|rarc|a| persorre| |r lre erl|ly regard|rg ary crarges |r sa|es
agreererls ard de||very lerrs.
Tre l|r|rg ol suoslarl|ve procedures ray reed lo oe rod|l|ed. Tre
aud|lor ray corc|ude lral perlorr|rg suoslarl|ve lesl|rg al or rear lre
per|od erd oeller addresses ar assessed r|s| ol raler|a| r|sslalererl
due lo lraud. Tre aud|lor ray corc|ude lral, g|ver lre assessed r|s|s
ol |rlerl|ora| r|sslalererl or rar|pu|al|or, aud|l procedures lo exlerd
aud|l corc|us|ors lror ar |rler|r dale lo lre per|od erd Wou|d rol oe
ellecl|ve. lr corlrasl, oecause ar |rlerl|ora| r|sslalererllor
exarp|e, a r|sslalererl |rvo|v|rg |rproper reverue recogr|l|orray
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-56
rave oeer |r|l|aled |r ar |rler|r per|od, lre aud|lor ray e|ecl lo app|y
suoslarl|ve procedures lo lrarsacl|ors occurr|rg ear||er |r or lrrougroul
lre reporl|rg per|od.
Tre exlerl ol lre procedures app||ed rel|ecls lre assessrerl ol lre
r|s|s ol raler|a| r|sslalererl due lo lraud. For exarp|e, |rcreas|rg
sarp|e s|zes or perlorr|rg ara|yl|ca| procedures al a rore dela||ed
|eve| ray oe appropr|ale. A|so, corpuler-ass|sled aud|l lecrr|ques
ray erao|e rore exlers|ve lesl|rg ol e|eclror|c lrarsacl|ors ard
accourl l||es. 3ucr lecrr|ques car oe used lo se|ecl sarp|e
lrarsacl|ors lror |ey e|eclror|c l||es, lo sorl lrarsacl|ors W|lr spec|l|c
craracler|sl|cs, or lo lesl ar erl|re popu|al|or |rslead ol a sarp|e.
A38. ll lre aud|lor |derl|l|es a r|s| ol raler|a| r|sslalererl due lo lraud
lral allecls |rverlory quarl|l|es, exar|r|rg lre erl|ly's |rverlory records
ray re|p lo |derl|ly |ocal|ors or |lers lral requ|re spec|l|c allerl|or dur|rg
or aller lre prys|ca| |rverlory courl. 3ucr a rev|eW ray |ead lo a dec|s|or
lo ooserve |rverlory courls al cerla|r |ocal|ors or ar urarrourced oas|s or
lo corducl |rverlory courls al a|| |ocal|ors or lre sare dale.
A39. Tre aud|lor ray |derl|ly a r|s| ol raler|a| r|sslalererl due lo lraud
allecl|rg a ruroer ol accourls ard asserl|ors. Trese ray |rc|ude assel
va|ual|or, esl|rales re|al|rg lo spec|l|c lrarsacl|ors (sucr as acqu|s|l|ors,
reslruclur|rgs, or d|sposa|s ol a segrerl ol lre ous|ress), ard olrer
s|gr|l|carl accrued ||ao|||l|es (sucr as pers|or ard olrer posl-erp|oyrerl
oerel|l oo||gal|ors, or erv|rorrerla| rered|al|or ||ao|||l|es). Tre r|s| ray
a|so re|ale lo s|gr|l|carl crarges |r assurpl|ors re|al|rg lo recurr|rg
esl|rales. lrlorral|or galrered lrrougr oola|r|rg ar urderslard|rg ol lre
erl|ly ard |ls erv|rorrerl ray ass|sl lre aud|lor |r eva|ual|rg lre
reasorao|eress ol sucr raragererl esl|rales ard urder|y|rg judgrerls
ard assurpl|ors. A relrospecl|ve rev|eW ol s|r||ar raragererl judgrerls
ard assurpl|ors app||ed |r pr|or per|ods ray a|so prov|de |rs|grl aooul lre
reasorao|eress ol judgrerls ard assurpl|ors supporl|rg raragererl
esl|rales.
A10. Exarp|es ol poss|o|e aud|l procedures lo address lre assessed r|s|s
ol raler|a| r|sslalererl due lo lraud, |rc|ud|rg lrose lral |||uslrale lre
|rcorporal|or ol ar e|ererl ol urpred|clao|||ly, are preserled |r Apperd|x 2.
Tre apperd|x |rc|udes exarp|es ol resporses lo lre aud|lor's assessrerl
ol lre r|s|s ol raler|a| r|sslalererl resu|l|rg lror oolr lraudu|erl l|rarc|a|
reporl|rg, |rc|ud|rg lraudu|erl l|rarc|a| reporl|rg resu|l|rg lror reverue
recogr|l|or, ard r|sappropr|al|or ol assels.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-57
Audit Procedures Responsive to Risks Related to Management
0verride of Controls
Journa| Enrr|es ano Drner /ousrmenrs (Rel: Para. 32(a))
A11. Valer|a| r|sslalererl ol l|rarc|a| slalererls due lo lraud oller
|rvo|ve lre rar|pu|al|or ol lre l|rarc|a| reporl|rg process oy record|rg
|rappropr|ale or uraulror|zed jourra| erlr|es. Tr|s ray occur lrrougroul
lre year or al per|od erd, or oy raragererl ra||rg adjuslrerls lo
arourls reporled |r lre l|rarc|a| slalererls lral are rol rel|ecled |r jourra|
erlr|es, sucr as lrrougr corso||dal|rg adjuslrerls ard rec|ass|l|cal|ors.
A12. Furlrer, lre aud|lor's cors|deral|or ol lre r|s|s ol raler|a|
r|sslalererl assoc|aled W|lr |rappropr|ale overr|de ol corlro|s over jourra|
erlr|es |s |rporlarl s|rce auloraled processes ard corlro|s ray reduce lre
r|s| ol |radverlerl error oul do rol overcore lre r|s| lral |rd|v|dua|s ray
|rappropr|ale|y overr|de sucr auloraled processes, lor exarp|e, oy
crarg|rg lre arourls oe|rg auloral|ca||y passed lo lre gerera| |edger or lo
lre l|rarc|a| reporl|rg sysler. Furlrerrore, Wrer lT |s used lo lrarsler
|rlorral|or auloral|ca||y, lrere ray oe ||ll|e or ro v|s|o|e ev|derce ol sucr
|rlerverl|or |r lre |rlorral|or syslers.
A13. wrer |derl|ly|rg ard se|ecl|rg jourra| erlr|es ard olrer adjuslrerls
lor lesl|rg ard delerr|r|rg lre appropr|ale relrod ol exar|r|rg lre
urder|y|rg supporl lor lre |lers se|ecled, lre lo||oW|rg rallers are ol
re|evarce:
Tre assessrerl ol lre r|s|s ol raler|a| r|sslalererl due lo lraud - lre
preserce ol lraud r|s| laclors ard olrer |rlorral|or oola|red dur|rg lre
aud|lor's assessrerl ol lre r|s|s ol raler|a| r|sslalererl due lo lraud
ray ass|sl lre aud|lor lo |derl|ly spec|l|c c|asses ol jourra| erlr|es ard
olrer adjuslrerls lor lesl|rg.
Corlro|s lral rave oeer |rp|ererled over jourra| erlr|es ard olrer
adjuslrerls - ellecl|ve corlro|s over lre preparal|or ard posl|rg ol
jourra| erlr|es ard olrer adjuslrerls ray reduce lre exlerl ol
suoslarl|ve lesl|rg recessary, prov|ded lral lre aud|lor ras lesled lre
operal|rg ellecl|veress ol lre corlro|s.
Tre erl|ly's l|rarc|a| reporl|rg process ard lre ralure ol ev|derce lral
car oe oola|red - lor rary erl|l|es roul|re process|rg ol lrarsacl|ors
|rvo|ves a coro|ral|or ol rarua| ard auloraled sleps ard procedures.
3|r||ar|y, lre process|rg ol jourra| erlr|es ard olrer adjuslrerls ray
|rvo|ve oolr rarua| ard auloraled procedures ard corlro|s. wrer
|rlorral|or lecrro|ogy |s used |r lre l|rarc|a| reporl|rg process, jourra|
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-58
erlr|es ard olrer adjuslrerls ray ex|sl or|y |r e|eclror|c lorr.
Tre craracler|sl|cs ol lraudu|erl jourra| erlr|es or olrer adjuslrerls -
|rappropr|ale jourra| erlr|es or olrer adjuslrerls oller rave ur|que
|derl|ly|rg craracler|sl|cs. 3ucr craracler|sl|cs ray |rc|ude erlr|es (a)
rade lo urre|aled, urusua|, or se|dor-used accourls, (o) rade oy
|rd|v|dua|s Wro lyp|ca||y do rol ra|e jourra| erlr|es, (c) recorded al lre
erd ol lre per|od or as posl-c|os|rg erlr|es lral rave ||ll|e or ro
exp|aral|or or descr|pl|or, (d) rade e|lrer oelore or dur|rg lre
preparal|or ol lre l|rarc|a| slalererls lral do rol rave accourl
ruroers, or (e) corla|r|rg rourd ruroers or cors|slerl erd|rg
ruroers.
Tre ralure ard corp|ex|ly ol lre accourls - |rappropr|ale jourra|
erlr|es or adjuslrerls ray oe app||ed lo accourls lral (a) corla|r
lrarsacl|ors lral are corp|ex or urusua| |r ralure, (o) corla|r
s|gr|l|carl esl|rales ard per|od-erd adjuslrerls, (c) rave oeer prore
lo r|sslalererls |r lre pasl, (d) rave rol oeer recorc||ed or a l|re|y
oas|s or corla|r urrecorc||ed d|llererces, (e) corla|r |rler-corpary
lrarsacl|ors, or (l) are olrerW|se assoc|aled W|lr ar |derl|l|ed r|s| ol
raler|a| r|sslalererl due lo lraud. lr aud|ls ol erl|l|es lral rave
severa| |ocal|ors or corporerls, cors|deral|or |s g|ver lo lre reed lo
se|ecl jourra| erlr|es lror ru|l|p|e |ocal|ors.
Jourra| erlr|es or olrer adjuslrerls processed ouls|de lre rorra|
course ol ous|ress - ror slardard jourra| erlr|es ray rol oe suojecl lo
lre sare |eve| ol |rlerra| corlro| as lrose jourra| erlr|es used or a
recurr|rg oas|s lo record lrarsacl|ors sucr as rorlr|y sa|es, purcrases
ard casr d|soursererls.
A11. Tre aud|lor uses proless|ora| judgrerl |r delerr|r|rg lre ralure,
l|r|rg ard exlerl ol lesl|rg ol jourra| erlr|es ard olrer adjuslrerls.
loWever, oecause lraudu|erl jourra| erlr|es ard olrer adjuslrerls are
oller rade al lre erd ol a reporl|rg per|od, paragrapr 32(a)(||) requ|res lre
aud|lor lo se|ecl lre jourra| erlr|es ard olrer adjuslrerls rade al lral l|re.
Furlrer, oecause raler|a| r|sslalererls |r l|rarc|a| slalererls due lo lraud
car occur lrrougroul lre per|od ard ray |rvo|ve exlers|ve ellorls lo
corcea| roW lre lraud |s accorp||sred, paragrapr 32(a)(|||) requ|res lre
aud|lor lo cors|der Wrelrer lrere |s a|so a reed lo lesl jourra| erlr|es ard
olrer adjuslrerls lrrougroul lre per|od.
Accounting Estimates (Rel: Para. 32(o))
A15. lr prepar|rg l|rarc|a| slalererls, raragererl |s respors|o|e lor
ra||rg a ruroer ol judgrerls or assurpl|ors lral allecl s|gr|l|carl
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-59
accourl|rg esl|rales ard lor ror|lor|rg lre reasorao|eress ol sucr
esl|rales or ar orgo|rg oas|s. Fraudu|erl l|rarc|a| reporl|rg |s oller
accorp||sred lrrougr |rlerl|ora| r|sslalererl ol accourl|rg esl|rales.
Tr|s ray oe acr|eved oy, lor exarp|e, urderslal|rg or overslal|rg a||
prov|s|ors or reserves |r lre sare lasr|or so as lo oe des|gred e|lrer lo
sroolr earr|rgs over lWo or rore accourl|rg per|ods, or lo acr|eve a
des|graled earr|rgs |eve| |r order lo dece|ve l|rarc|a| slalererl users oy
|rl|uerc|rg lre|r percepl|ors as lo lre erl|ly's perlorrarce ard prol|lao|||ly.
A1. Tre purpose ol perlorr|rg a relrospecl|ve rev|eW ol raragererl
judgrerls ard assurpl|ors re|aled lo s|gr|l|carl accourl|rg esl|rales
rel|ecled |r lre l|rarc|a| slalererls ol lre pr|or year |s lo delerr|re Wrelrer
lrere |s ar |rd|cal|or ol a poss|o|e o|as or lre parl ol raragererl. ll |s rol
|rlerded lo ca|| |rlo quesl|or lre aud|lor's proless|ora| judgrerls rade |r
lre pr|or year lral Were oased or |rlorral|or ava||ao|e al lre l|re.
8usiness Rationale for 3ignificant 7ransactions (Rel: Para. 32(c))
A1Z. lrd|calors lral ray suggesl lral s|gr|l|carl lrarsacl|ors lral are
ouls|de lre rorra| course ol ous|ress lor lre erl|ly, or lral olrerW|se
appear lo oe urusua|, ray rave oeer erlered |rlo lo ergage |r lraudu|erl
l|rarc|a| reporl|rg or lo corcea| r|sappropr|al|or ol assels |rc|ude:
Tre lorr ol sucr lrarsacl|ors appears over|y corp|ex (lor exarp|e, lre
lrarsacl|or |rvo|ves ru|l|p|e erl|l|es W|lr|r a corso||daled group or
ru|l|p|e urre|aled lr|rd parl|es).
Varagererl ras rol d|scussed lre ralure ol ard accourl|rg lor sucr
lrarsacl|ors W|lr lrose crarged W|lr goverrarce ol lre erl|ly, ard lrere
|s |radequale docurerlal|or.
Varagererl |s p|ac|rg rore erpras|s or lre reed lor a parl|cu|ar
accourl|rg lrealrerl lrar or lre urder|y|rg ecoror|cs ol lre
lrarsacl|or.
Trarsacl|ors lral |rvo|ve ror-corso||daled re|aled parl|es, |rc|ud|rg
spec|a| purpose erl|l|es, rave rol oeer proper|y rev|eWed or approved
oy lrose crarged W|lr goverrarce ol lre erl|ly.
Tre lrarsacl|ors |rvo|ve prev|ous|y ur|derl|l|ed re|aled parl|es or
parl|es lral do rol rave lre suoslarce or lre l|rarc|a| slrerglr lo
supporl lre lrarsacl|or W|lroul ass|slarce lror lre erl|ly urder aud|l.
Eva|uat|on of Aud|t Ev|dence (Rel: Para. 31-3Z)
A18. 3A 330 requ|res lre aud|lor, oased or lre aud|l procedures
perlorred ard lre aud|l ev|derce oola|red, lo eva|uale Wrelrer lre
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-60
assessrerls ol lre r|s|s ol raler|a| r|sslalererl al lre asserl|or |eve|
rera|r appropr|ale. Tr|s eva|ual|or |s pr|rar||y a qua||lal|ve raller oased
or lre aud|lor's judgrerl. 3ucr ar eva|ual|or ray prov|de lurlrer |rs|grl
aooul lre r|s|s ol raler|a| r|sslalererl due lo lraud ard Wrelrer lrere |s a
reed lo perlorr add|l|ora| or d|llererl aud|l procedures. Apperd|x 3
corla|rs exarp|es ol c|rcurslarces lral ray |rd|cale lre poss|o|||ly ol
lraud.
Analytical Procedures Performed in the 0verall Review of the Financial
3tatements (Rel: Para. 31)
A19. 0elerr|r|rg Wr|cr parl|cu|ar lrerds ard re|al|orsr|ps ray |rd|cale a
r|s| ol raler|a| r|sslalererl due lo lraud requ|res proless|ora| judgrerl.
urusua| re|al|orsr|ps |rvo|v|rg year-erd reverue ard |rcore are
parl|cu|ar|y re|evarl. Trese r|grl |rc|ude, lor exarp|e: urcraracler|sl|ca||y
|arge arourls ol |rcore oe|rg reporled |r lre |asl leW Wee|s ol lre
reporl|rg per|od or urusua| lrarsacl|ors; or |rcore lral |s |rcors|slerl W|lr
lrerds |r casr l|oW lror operal|ors.
Consideration of ldentified Misstatements (Rel: Para. 35-3Z)
A50. 3|rce lraud |rvo|ves |rcerl|ve or pressure lo corr|l lraud, a
perce|ved opporlur|ly lo do so or sore ral|ora||zal|or ol lre acl, ar |rslarce
ol lraud |s ur|||e|y lo oe ar |so|aled occurrerce. Accord|rg|y,
r|sslalererls, sucr as rurerous r|sslalererls al a spec|l|c |ocal|or ever
lrougr lre curu|al|ve ellecl |s rol raler|a|, ray oe |rd|cal|ve ol a r|s| ol
raler|a| r|sslalererl due lo lraud.
A51. Tre |rp||cal|ors ol |derl|l|ed lraud deperd or lre c|rcurslarces.
For exarp|e, ar olrerW|se |rs|gr|l|carl lraud ray oe s|gr|l|carl |l |l |rvo|ves
ser|or raragererl. lr sucr c|rcurslarces, lre re||ao|||ly ol ev|derce
prev|ous|y oola|red ray oe ca||ed |rlo quesl|or, s|rce lrere ray oe douols
aooul lre corp|eleress ard lrulrlu|ress ol represerlal|ors rade ard aooul
lre geru|reress ol accourl|rg records ard docurerlal|or. Trere ray a|so
oe a poss|o|||ly ol co||us|or |rvo|v|rg erp|oyees, raragererl or lr|rd
parl|es.
A52. 3A 150, 'Eva|ual|or ol V|sslalererls lderl|l|ed dur|rg lre Aud|l
13
,
ard 3A Z00, 'Tre lrdeperderl Aud|lor's Reporl or 0erera| Purpose
13
Tre Aud|l|rg ard Assurarce 3lardards 8oard W||| |ssue ar Exposure 0rall ol lre proposed
reW 3lardard oased or lre correspord|rg lrlerral|ora| 3lardard or Aud|l|rg |r lre rear
lulure.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-61
F|rarc|a| 3lalererls
11
, eslao||sr requ|rererls ard prov|de gu|darce or lre
eva|ual|or ard d|spos|l|or ol r|sslalererls ard lre ellecl or lre aud|lor's
op|r|or |r lre aud|lor's reporl.
Aud|tor Unab|e to 6ont|nue the Engagement (Rel: Para. 38)
A53. Exarp|es ol excepl|ora| c|rcurslarces lral ray ar|se ard lral ray
or|rg |rlo quesl|or lre aud|lor's ao|||ly lo corl|rue perlorr|rg lre aud|l
|rc|ude:
(a) Tre erl|ly does rol la|e lre appropr|ale acl|or regard|rg lraud lral
lre aud|lor cors|ders recessary |r lre c|rcurslarces, ever Wrer lre
lraud |s rol raler|a| lo lre l|rarc|a| slalererls;
(o) Tre aud|lor's cors|deral|or ol lre r|s|s ol raler|a| r|sslalererl due
lo lraud ard lre resu|ls ol aud|l lesls |rd|cale a s|gr|l|carl r|s| ol
raler|a| ard pervas|ve lraud; or
(c) Tre aud|lor ras s|gr|l|carl corcerr aooul lre corpelerce or |rlegr|ly
ol raragererl or lrose crarged W|lr goverrarce.
A51. 8ecause ol lre var|ely ol lre c|rcurslarces lral ray ar|se, |l |s rol
poss|o|e lo descr|oe del|r|l|ve|y Wrer W|lrdraWa| lror ar ergagererl |s
appropr|ale. Faclors lral allecl lre aud|lor's corc|us|or |rc|ude lre
|rp||cal|ors ol lre |rvo|vererl ol a reroer ol raragererl or ol lrose
crarged W|lr goverrarce (Wr|cr ray allecl lre re||ao|||ly ol raragererl
represerlal|ors) ard lre ellecls or lre aud|lor ol a corl|ru|rg assoc|al|or
W|lr lre erl|ly.
A55. Tre aud|lor ras proless|ora| ard |ega| respors|o|||l|es |r sucr
c|rcurslarces ard lrese respors|o|||l|es ray vary urder d|llererl
|eg|s|al|ors ard regu|al|ors ard, accord|rg|y, lre c||erls. urder sore
|eg|s|al|ors/ regu|al|ors, lor exarp|e, lre aud|lor ray oe erl|l|ed lo, or
requ|red lo, ra|e a slalererl or reporl lo lre persor or persors Wro rade
lre aud|l appo|rlrerl or, |r sore cases, lo regu|alory aulror|l|es. 0|ver lre
excepl|ora| ralure ol lre c|rcurslarces ard lre reed lo cors|der lre |ega|
requ|rererls, lre aud|lor ray cors|der |l appropr|ale lo see| |ega| adv|ce
Wrer dec|d|rg Wrelrer lo W|lrdraW lror ar ergagererl ard |r delerr|r|rg
ar appropr|ale course ol acl|or, |rc|ud|rg lre poss|o|||ly ol reporl|rg lo
srarero|ders, regu|alors or olrers
15.
11
l|lrerlo |roWr as lre Aud|l|rg ard Assurarce 3lardard (AA3) 28, 'Tre Aud|lor's Reporl
or F|rarc|a| 3lalererls.
15
Tre Code ol Elr|cs |ssued oy lre lrsl|lule ol Crarlered Accourlarls ol lrd|a corla|rs
gu|darce or corrur|cal|or oelWeer lre oulgo|rg ard |rcor|rg aud|lor.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-62
A5. lr sore cases, lre opl|or ol W|lrdraW|rg lror lre ergagererl ray
rol oe ava||ao|e lo lre aud|lor due lo lre ralure ol lre lerrs ol appo|rlrerl
or puo||c |rleresl cors|deral|ors.
Hanagement Representat|ons (Rel: Para. 39)
A5Z. 3A 580, 'Varagererl Represerlal|ors
1
, eslao||sres requ|rererls
ard prov|des gu|darce or oola|r|rg appropr|ale represerlal|ors lror
raragererl |r lre aud|l. lr add|l|or lo ac|roW|edg|rg |ls respors|o|||ly lor
lre l|rarc|a| slalererls, |l |s |rporlarl lral, |rrespecl|ve ol lre s|ze ol lre
erl|ly, raragererl ac|roW|edge |ls respors|o|||ly lor |rlerra| corlro|
des|gred, |rp|ererled ard ra|rla|red lo preverl ard delecl lraud.
A58. 8ecause ol lre ralure ol lraud ard lre d|ll|cu|l|es ercourlered oy
aud|lors |r delecl|rg raler|a| r|sslalererls |r lre l|rarc|a| slalererls
resu|l|rg lror lraud, |l |s |rporlarl lral lre aud|lor oola|r a Wr|ller
represerlal|or lror raragererl corl|rr|rg lral |l ras d|sc|osed lo lre
aud|lor:
(a) Tre resu|ls ol raragererl's assessrerl ol lre r|s| lral lre l|rarc|a|
slalererls ray oe raler|a||y r|sslaled as a resu|l ol lraud; ard
(o) lls |roW|edge ol aclua|, suspecled or a||eged lraud allecl|rg lre
erl|ly.
6ommun|cat|ons to Hanagement and w|th Those 6harged w|th
Covernance
Communication to Management (Rel: Para. 10)
A59. wrer lre aud|lor ras oola|red ev|derce lral lraud ex|sls or ray
ex|sl, |l |s |rporlarl lral lre raller oe orougrl lo lre allerl|or ol lre
appropr|ale |eve| ol raragererl as soor as pracl|cao|e. Tr|s |s so ever |l
lre raller r|grl oe cors|dered |rcorsequerl|a| (lor exarp|e, a r|ror
dela|cal|or oy ar erp|oyee al a |oW |eve| |r lre erl|ly's orgar|zal|or). Tre
delerr|ral|or ol Wr|cr |eve| ol raragererl |s lre appropr|ale ore |s a
raller ol proless|ora| judgrerl ard |s allecled oy sucr laclors as lre
|||e||rood ol co||us|or ard lre ralure ard ragr|lude ol lre suspecled lraud.
0rd|rar||y, lre appropr|ale |eve| ol raragererl |s al |easl ore |eve| aoove
lre persors Wro appear lo oe |rvo|ved W|lr lre suspecled lraud.
Communication with 7hose Charged with Covernance (Rel: Para. 11)
A0. Tre aud|lor's corrur|cal|or W|lr lrose crarged W|lr goverrarce
1
l|lrerlo |roWr as lre Aud|l|rg ard Assurarce 3lardard (AA3) 11, 'Varagererl
Represerlal|ors.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-63
ray oe rade ora||y or |r Wr|l|rg. 3A 20 (Rev|sed) |derl|l|es laclors lre
aud|lor cors|ders |r delerr|r|rg Wrelrer lo corrur|cale ora||y or |r Wr|l|rg.
0ue lo lre ralure ard sers|l|v|ly ol lraud |rvo|v|rg ser|or raragererl, or
lraud lral resu|ls |r a raler|a| r|sslalererl |r lre l|rarc|a| slalererls, lre
aud|lor reporls sucr rallers or a l|re|y oas|s ard ray cors|der |l
recessary lo a|so reporl sucr rallers |r Wr|l|rg.
A1. lr sore cases, lre aud|lor ray cors|der |l appropr|ale lo
corrur|cale W|lr lrose crarged W|lr goverrarce Wrer lre aud|lor
oecores aWare ol lraud |rvo|v|rg erp|oyees olrer lrar raragererl lral
does rol resu|l |r a raler|a| r|sslalererl. 3|r||ar|y, lrose crarged W|lr
goverrarce ray W|sr lo oe |rlorred ol sucr c|rcurslarces. Tre
corrur|cal|or process |s ass|sled |l lre aud|lor ard lrose crarged W|lr
goverrarce agree al ar ear|y slage |r lre aud|l aooul lre ralure ard exlerl
ol lre aud|lor's corrur|cal|ors |r lr|s regard.
A2. lr lre excepl|ora| c|rcurslarces Wrere lre aud|lor ras douols aooul
lre |rlegr|ly or roresly ol raragererl or lrose crarged W|lr goverrarce,
lre aud|lor ray cors|der |l appropr|ale lo oola|r |ega| adv|ce lo ass|sl |r
delerr|r|rg lre appropr|ale course ol acl|or.
0ther Matters Related to Fraud (Rel: Para. 12)
A3. 0lrer rallers re|aled lo lraud lo oe d|scussed W|lr lrose crarged
W|lr goverrarce ol lre erl|ly ray |rc|ude, lor exarp|e:
Corcerrs aooul lre ralure, exlerl ard lrequercy ol raragererl's
assessrerls ol lre corlro|s |r p|ace lo preverl ard delecl lraud ard ol
lre r|s| lral lre l|rarc|a| slalererls ray oe r|sslaled.
A la||ure oy raragererl lo appropr|ale|y address |derl|l|ed raler|a|
Wea|resses |r |rlerra| corlro|, or lo appropr|ale|y respord lo ar
|derl|l|ed lraud.
Tre aud|lor's eva|ual|or ol lre erl|ly's corlro| erv|rorrerl, |rc|ud|rg
quesl|ors regard|rg lre corpelerce ard |rlegr|ly ol raragererl.
Acl|ors oy raragererl lral ray oe |rd|cal|ve ol lraudu|erl l|rarc|a|
reporl|rg, sucr as raragererl's se|ecl|or ard app||cal|or ol
accourl|rg po||c|es lral ray oe |rd|cal|ve ol raragererl's ellorl lo
rarage earr|rgs |r order lo dece|ve l|rarc|a| slalererl users oy
|rl|uerc|rg lre|r percepl|ors as lo lre erl|ly's perlorrarce ard
prol|lao|||ly.
Corcerrs aooul lre adequacy ard corp|eleress ol lre aulror|zal|or ol
lrarsacl|ors lral appear lo oe ouls|de lre rorra| course ol ous|ress.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-64
6ommun|cat|ons to Regu|atory and Enforcement Author|t|es
(Rel: Para. 13)
A1. Tre aud|lor's proless|ora| duly lo ra|rla|r lre corl|derl|a||ly ol c||erl
|rlorral|or ray prec|ude reporl|rg lraud lo a parly ouls|de lre c||erl erl|ly.
loWever, lre aud|lor's |ega| respors|o|||l|es vary oy |aW & slalule ard, |r
cerla|r c|rcurslarces, lre duly ol corl|derl|a||ly ray oe overr|dder oy
slalule, lre |aW or courls ol |aW. lr sore erl|l|es, lor exarp|e, |r case ol
aud|l ol oar|s, lre aud|lor ras a slalulory duly lo reporl lre occurrerce ol
lraud lo lre superv|sory aulror|l|es, |.e., lre Reserve 8ar| ol lrd|a, |r lerrs
ol lre |aller's c|rcu|ar ro. 083.F0v.(F).No. 8C/23.08.001/2001-02. A|so, |r
sore erl|l|es lre aud|lor ray rave a duly lo reporl r|sslalererls lo
aulror|l|es |r lrose cases Wrere raragererl ard lrose crarged W|lr
goverrarce la|| lo la|e correcl|ve acl|or.
A5. Tre aud|lor ray cors|der |l appropr|ale lo oola|r |ega| adv|ce lo
delerr|re lre appropr|ale course ol acl|or |r lre c|rcurslarces, lre
purpose ol Wr|cr |s lo ascerla|r lre sleps recessary |r cors|der|rg lre
puo||c |rleresl aspecls ol |derl|l|ed lraud.
A. lr sore c||erls, requ|rererls lor reporl|rg lraud, Wrelrer or rol
d|scovered lrrougr lre aud|l process, ray oe suojecl lo spec|l|c prov|s|ors
ol lre aud|l rardale or re|aled |eg|s|al|or or regu|al|or.
Hater|a| Hod|f|cat|ons to |8A 240, The Aud|tor's
Respons|b|||ty re|at|ng to Fraud |n an Aud|t of F|nanc|a|
8tatements
Add|t|ons
1. lr paragrapr A1, lre gu|darce ras oeer rade rore erl|ly spec|l|c,
|r lre corlexl ol lrd|ar |ega| requ|rererl, oy Way ol ar exarp|e.
0e|et|ons
1. Paragrapr A ol lre App||cal|or 3ecl|or ol l3A 210 dea|l W|lr lre
app||cal|or ol lre requ|rererls ol l3A 210 lo lre aud|ls ol puo||c seclor
erl|l|es. 3|rce as rerl|ored |r lre 'Prelace lo lre 3lardards or 0ua||ly
Corlro|, Aud|l|rg, Rev|eW, 0lrer Assurarce ard Re|aled 3erv|ces, lre
3lardards |ssued oy lre Aud|l|rg ard Assurarce 3lardards 8oard, app|y
equa||y lo a|| erl|l|es, |rrespecl|ve ol lre|r lorr, ralure ard s|ze, a spec|l|c
relererce lo app||cao|||ly ol lre 3lardard lo puo||c seclor erl|l|es ras oeer
de|eled.
Furlrer, |l |s a|so poss|o|e lral sucr a spec|l|c reporl|rg requ|rererl ray
a|so ex|sl |r case ol ror puo||c seclor erl|l|es pursuarl lo a requ|rererl
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-65
urder lre slalule or regu|al|or urder Wr|cr lrey operale. Accord|rg|y, lre
sp|r|l ol erslWr||e A, r|gr||grl|rg lre lacl lral |r sore cases, lre aud|lors
ray oe requ|red oy lre |eg|s|alure or lre regu|alor lo spec|l|ca||y reporl or
lre |rslarces ol aclua|/suspecled lraud |r lre c||erl erl|ly, ras oeer rela|red
ard exarp|es ol sucr s|lual|ors rave a|so oeer added.
2. Paragrapr A5 ol lre App||cal|or 3ecl|or ol l3A 210 dea|l W|lr lre
cors|deral|ors spec|l|c lo puo||c seclor erl|l|es. 3|rce as rerl|ored |r lre
'Prelace lo lre 3lardards or 0ua||ly Corlro|, Aud|l|rg, Rev|eW, 0lrer
Assurarce ard Re|aled 3erv|ces, lre 3lardards |ssued oy lre Aud|l|rg ard
Assurarce 3lardards 8oard, app|y equa||y lo a|| erl|l|es, |rrespecl|ve ol lre|r
lorr, ralure ard s|ze, a spec|l|c relererce lo app||cao|||ly ol lre 3lardard lo
puo||c seclor erl|l|es ras oeer de|eled.
Furlrer, |l |s a|so poss|o|e lral opl|or ol W|lrdraWa| ray rol oe ava||ao|e |r
case ol ror puo||c seclor erl|l|es pursuarl lo a requ|rererl urder lre
slalule or lerrs ol appo|rlrerl ol lre aud|lor. Accord|rg|y, lre sp|r|l ol
erslWr||e A5, r|gr||grl|rg lral |r sore cases, lre aud|lors ray rol oe
rav|rg ar opl|or lo W|lrdraW lror lre ergagererl ras oeer rela|red.
3. Paragrapr A ol lre App||cal|or 3ecl|or ol l3A 210 dea|l W|lr lre
app||cal|or ol lre requ|rererls ol l3A 210 lo lre aud|ls ol puo||c seclor
erl|l|es. 3|rce as rerl|ored |r lre 'Prelace lo lre 3lardards or 0ua||ly
Corlro|, Aud|l|rg, Rev|eW, 0lrer Assurarce ard Re|aled 3erv|ces, lre
3lardards |ssued oy lre Aud|l|rg ard Assurarce 3lardards 8oard, app|y
equa||y lo a|| erl|l|es, |rrespecl|ve ol lre|r lorr, ralure ard s|ze, a spec|l|c
relererce lo app||cao|||ly ol lre 3lardard lo puo||c seclor erl|l|es ras oeer
de|eled.
Furlrer, |l |s a|so poss|o|e lral sucr a spec|l|c reporl|rg requ|rererl ray
a|so ex|sl |r case ol ror puo||c seclor erl|l|es pursuarl lo a requ|rererl
urder lre slalule or regu|al|or urder Wr|cr lrey operale. Accord|rg|y, lre
sp|r|l ol A as g|ver l3A 210, r|gr||grl|rg lre lacl lral |r sore cases,
requ|rererls lor reporl|rg lraud, Wrelrer or rol d|scovered lrrougr lre aud|l
process, ray oe suojecl lo spec|l|c prov|s|ors ol lre aud|l rardale or
re|aled |eg|s|al|or or regu|al|or, ras oeer rela|red.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-66
Appendix 1
(Rel: Para. A25)
Examp|es of Fraud R|sk Factors
Tre lraud r|s| laclors |derl|l|ed |r lr|s Apperd|x are exarp|es ol sucr
laclors lral ray oe laced oy aud|lors |r a oroad rarge ol s|lual|ors.
3eparale|y preserled are exarp|es re|al|rg lo lre lWo lypes ol lraud
re|evarl lo lre aud|lor's cors|deral|or, |.e., lraudu|erl l|rarc|a| reporl|rg ard
r|sappropr|al|or ol assels. For eacr ol lrese lypes ol lraud, lre r|s| laclors
are lurlrer c|ass|l|ed oased or lre lrree cord|l|ors gerera||y preserl Wrer
raler|a| r|sslalererls due lo lraud occur: (a) |rcerl|ves/pressures, (o)
opporlur|l|es, ard (c) all|ludes/ral|ora||zal|ors. A|lrougr lre r|s| laclors
cover a oroad rarge ol s|lual|ors, lrey are or|y exarp|es ard, accord|rg|y,
lre aud|lor ray |derl|ly add|l|ora| or d|llererl r|s| laclors. Nol a|| ol lrese
exarp|es are re|evarl |r a|| c|rcurslarces, ard sore ray oe ol grealer or
|esser s|gr|l|carce |r erl|l|es ol d|llererl s|ze or W|lr d|llererl oWrersr|p
craracler|sl|cs or c|rcurslarces. A|so, lre order ol lre exarp|es ol r|s|
laclors prov|ded |s rol |rlerded lo rel|ecl lre|r re|al|ve |rporlarce or
lrequercy ol occurrerce.
R|sk Factors Re|at|ng to H|sstatements Ar|s|ng from Fraudu|ent
F|nanc|a| Report|ng
Tre lo||oW|rg are exarp|es ol r|s| laclors re|al|rg lo r|sslalererls ar|s|rg
lror lraudu|erl l|rarc|a| reporl|rg.
lncentives/Pressures
F|rarc|a| slao|||ly or prol|lao|||ly |s lrrealered oy ecoror|c, |rduslry, or erl|ly
operal|rg cord|l|ors, sucr as (or as |rd|caled oy):
l|gr degree ol corpel|l|or or rar|el salural|or, accorpar|ed oy
dec||r|rg rarg|rs.
l|gr vu|rerao|||ly lo rap|d crarges, sucr as crarges |r lecrro|ogy,
producl ooso|escerce, or |rleresl rales.
3|gr|l|carl dec||res |r cuslorer derard ard |rcreas|rg ous|ress
la||ures |r e|lrer lre |rduslry or overa|| ecorory.
0peral|rg |osses ra||rg lre lrreal ol oar|ruplcy, lorec|osure, or rosl||e
la|eover |rr|rerl.
Recurr|rg regal|ve casr l|oWs lror operal|ors or ar |rao|||ly lo
gererale casr l|oWs lror operal|ors Wr||e reporl|rg earr|rgs ard
earr|rgs groWlr.
Rap|d groWlr or urusua| prol|lao|||ly espec|a||y corpared lo lral ol
olrer corpar|es |r lre sare |rduslry.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-67
NeW accourl|rg, slalulory, or regu|alory requ|rererls.
Excess|ve pressure ex|sls lor raragererl lo reel lre requ|rererls or
expeclal|ors ol lr|rd parl|es due lo lre lo||oW|rg:
Prol|lao|||ly or lrerd |eve| expeclal|ors ol |rveslrerl ara|ysls,
|rsl|lul|ora| |rveslors, s|gr|l|carl cred|lors, or olrer exlerra| parl|es
(parl|cu|ar|y expeclal|ors lral are urdu|y aggress|ve or urrea||sl|c),
|rc|ud|rg expeclal|ors crealed oy raragererl |r, lor exarp|e, over|y
opl|r|sl|c press re|eases or arrua| reporl ressages.
Need lo oola|r add|l|ora| deol or equ|ly l|rarc|rg lo slay corpel|l|ve
|rc|ud|rg l|rarc|rg ol rajor researcr ard deve|oprerl or cap|la|
experd|lures.
Varg|ra| ao|||ly lo reel excrarge ||sl|rg requ|rererls or deol
repayrerl or olrer deol coverarl requ|rererls.
Perce|ved or rea| adverse ellecls ol reporl|rg poor l|rarc|a| resu|ls or
s|gr|l|carl perd|rg lrarsacl|ors, sucr as ous|ress coro|ral|ors or
corlracl aWards.
lrlorral|or ava||ao|e |rd|cales lral lre persora| l|rarc|a| s|lual|or ol
raragererl or lrose crarged W|lr goverrarce |s lrrealered oy lre erl|ly's
l|rarc|a| perlorrarce ar|s|rg lror lre lo||oW|rg:
3|gr|l|carl l|rarc|a| |rleresls |r lre erl|ly.
3|gr|l|carl porl|ors ol lre|r corpersal|or (lor exarp|e, ooruses, sloc|
opl|ors, ard earr-oul arrargererls) oe|rg corl|rgerl upor acr|ev|rg
aggress|ve largels lor sloc| pr|ce, operal|rg resu|ls, l|rarc|a| pos|l|or,
or casr l|oW.
1Z
Persora| guararlees ol deols ol lre erl|ly.
Trere |s excess|ve pressure or raragererl or operal|rg persorre| lo
reel l|rarc|a| largels eslao||sred oy lrose crarged W|lr goverrarce,
|rc|ud|rg sa|es or prol|lao|||ly |rcerl|ve goa|s.
0pportunities
Tre ralure ol lre |rduslry or lre erl|ly's operal|ors prov|des opporlur|l|es lo
ergage |r lraudu|erl l|rarc|a| reporl|rg lral car ar|se lror lre lo||oW|rg:
3|gr|l|carl re|aled-parly lrarsacl|ors rol |r lre ord|rary course ol
ous|ress or W|lr re|aled erl|l|es rol aud|led or aud|led oy arolrer l|rr.
A slrorg l|rarc|a| preserce or ao|||ly lo dor|rale a cerla|r |rduslry
1Z
Varagererl |rcerl|ve p|ars ray oe corl|rgerl upor acr|ev|rg largels re|al|rg or|y lo
cerla|r accourls or se|ecled acl|v|l|es ol lre erl|ly, ever lrougr lre re|aled accourls or
acl|v|l|es ray rol oe raler|a| lo lre erl|ly as a Wro|e.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-68
seclor lral a||oWs lre erl|ly lo d|clale lerrs or cord|l|ors lo supp||ers or
cuslorers lral ray resu|l |r |rappropr|ale or ror-arr's-|erglr
lrarsacl|ors.
Assels, ||ao|||l|es, reverues, or experses oased or s|gr|l|carl esl|rales
lral |rvo|ve suojecl|ve judgrerls or urcerla|rl|es lral are d|ll|cu|l lo
corrooorale.
3|gr|l|carl, urusua|, or r|gr|y corp|ex lrarsacl|ors, espec|a||y lrose
c|ose lo per|od erd lral pose d|ll|cu|l 'suoslarce over lorr quesl|ors.
3|gr|l|carl operal|ors |ocaled or corducled across |rlerral|ora| oorders
|r jur|sd|cl|ors Wrere d|ller|rg ous|ress erv|rorrerls ard cu|lures
ex|sl.
use ol ous|ress |rlerred|ar|es lor Wr|cr lrere appears lo oe ro c|ear
ous|ress jusl|l|cal|or.
3|gr|l|carl oar| accourls or suos|d|ary or orarcr operal|ors |r lax-
raver jur|sd|cl|ors lor Wr|cr lrere appears lo oe ro c|ear ous|ress
jusl|l|cal|or.
Tre ror|lor|rg ol raragererl |s rol ellecl|ve as a resu|l ol lre lo||oW|rg:
0or|ral|or ol raragererl oy a s|rg|e persor or sra|| group (|r a ror
oWrer-raraged ous|ress) W|lroul corpersal|rg corlro|s.
0vers|grl oy lrose crarged W|lr goverrarce over lre l|rarc|a| reporl|rg
process ard |rlerra| corlro| |s rol ellecl|ve.
Trere |s a corp|ex or urslao|e orgar|zal|ora| slruclure, as ev|derced oy lre
lo||oW|rg:
0|ll|cu|ly |r delerr|r|rg lre orgar|zal|or or |rd|v|dua|s lral rave
corlro|||rg |rleresl |r lre erl|ly.
0ver|y corp|ex orgar|zal|ora| slruclure |rvo|v|rg urusua| |ega| erl|l|es
or rarager|a| ||res ol aulror|ly.
l|gr lurrover ol ser|or raragererl, |ega| course|, or lrose crarged
W|lr goverrarce.
lrlerra| corlro| corporerls are del|c|erl as a resu|l ol lre lo||oW|rg:
lradequale ror|lor|rg ol corlro|s, |rc|ud|rg auloraled corlro|s ard
corlro|s over |rler|r l|rarc|a| reporl|rg (Wrere exlerra| reporl|rg |s
requ|red).
l|gr lurrover rales or erp|oyrerl ol accourl|rg, |rlerra| aud|l, or
|rlorral|or lecrro|ogy slall lral are rol ellecl|ve.
Accourl|rg ard |rlorral|or syslers lral are rol ellecl|ve, |rc|ud|rg
s|lual|ors |rvo|v|rg raler|a| Wea|resses |r |rlerra| corlro|.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-69
Attitudes/Rationalizations
Corrur|cal|or, |rp|ererlal|or, supporl, or erlorcererl ol lre erl|ly's
va|ues or elr|ca| slardards oy raragererl, or lre corrur|cal|or ol
|rappropr|ale va|ues or elr|ca| slardards, lral are rol ellecl|ve.
Nor-l|rarc|a| raragererl's excess|ve parl|c|pal|or |r or preoccupal|or
W|lr lre se|ecl|or ol accourl|rg po||c|es or lre delerr|ral|or ol
s|gr|l|carl esl|rales.
KroWr r|slory ol v|o|al|ors ol secur|l|es |aWs or olrer |aWs ard
regu|al|ors, or c|a|rs aga|rsl lre erl|ly, |ls ser|or raragererl, or
lrose crarged W|lr goverrarce a||eg|rg lraud or v|o|al|ors ol |aWs ard
regu|al|ors.
Excess|ve |rleresl oy raragererl |r ra|rla|r|rg or |rcreas|rg lre
erl|ly's sloc| pr|ce or earr|rgs lrerd.
Tre pracl|ce oy raragererl ol corr|ll|rg lo ara|ysls, cred|lors, ard
olrer lr|rd parl|es lo acr|eve aggress|ve or urrea||sl|c lorecasls.
Varagererl la|||rg lo correcl |roWr raler|a| Wea|resses |r |rlerra|
corlro| or a l|re|y oas|s.
Ar |rleresl oy raragererl |r erp|oy|rg |rappropr|ale rears lo
r|r|r|ze reporled earr|rgs lor lax-rol|valed reasors.
LoW rora|e arorg ser|or raragererl.
Tre oWrer-rarager ra|es ro d|sl|rcl|or oelWeer persora| ard
ous|ress lrarsacl|ors.
0|spule oelWeer srarero|ders |r a c|ose|y re|d erl|ly.
Recurr|rg allerpls oy raragererl lo jusl|ly rarg|ra| or |rappropr|ale
accourl|rg or lre oas|s ol raler|a||ly.
Tre re|al|orsr|p oelWeer raragererl ard lre currerl or predecessor
aud|lor |s slra|red, as exr|o|led oy lre lo||oW|rg:
Frequerl d|spules W|lr lre currerl or predecessor aud|lor or
accourl|rg, aud|l|rg, or reporl|rg rallers.
urreasorao|e derards or lre aud|lor, sucr as urrea||sl|c l|re
corslra|rls regard|rg lre corp|el|or ol lre aud|l or lre |ssuarce ol
lre aud|lor's reporl.
Reslr|cl|ors or lre aud|lor lral |rappropr|ale|y ||r|l access lo
peop|e or |rlorral|or or lre ao|||ly lo corrur|cale ellecl|ve|y W|lr
lrose crarged W|lr goverrarce.
0or|reer|rg raragererl oerav|or |r dea||rg W|lr lre aud|lor,
espec|a||y |rvo|v|rg allerpls lo |rl|uerce lre scope ol lre
aud|lor's Wor| or lre se|ecl|or or corl|ruarce ol persorre|
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-70
ass|gred lo or corsu|led or lre aud|l ergagererl.
R|sk Factors Ar|s|ng from H|sstatements Ar|s|ng from
H|sappropr|at|on of Assets
R|s| laclors lral re|ale lo r|sslalererls ar|s|rg lror r|sappropr|al|or ol
assels are a|so c|ass|l|ed accord|rg lo lre lrree cord|l|ors gerera||y preserl
Wrer lraud ex|sls: |rcerl|ves/pressures, opporlur|l|es, ard
all|ludes/ral|ora||zal|or. 3ore ol lre r|s| laclors re|aled lo r|sslalererls
ar|s|rg lror lraudu|erl l|rarc|a| reporl|rg a|so ray oe preserl Wrer
r|sslalererls ar|s|rg lror r|sappropr|al|or ol assels occur. For exarp|e,
ror|lor|rg ol raragererl ard Wea|resses |r |rlerra| corlro| lral |s rol
ellecl|ve ray oe preserl Wrer r|sslalererls due lo e|lrer lraudu|erl
l|rarc|a| reporl|rg or r|sappropr|al|or ol assels ex|sl. Tre lo||oW|rg are
exarp|es ol r|s| laclors re|aled lo r|sslalererls ar|s|rg lror
r|sappropr|al|or ol assels.
lncentives/Pressures
Persora| l|rarc|a| oo||gal|ors ray creale pressure or raragererl or
erp|oyees W|lr access lo casr or olrer assels suscepl|o|e lo lrell lo
r|sappropr|ale lrose assels.
Adverse re|al|orsr|ps oelWeer lre erl|ly ard erp|oyees W|lr access lo
casr or olrer assels suscepl|o|e lo lrell ray rol|vale lrose erp|oyees lo
r|sappropr|ale lrose assels. For exarp|e, adverse re|al|orsr|ps ray oe
crealed oy lre lo||oW|rg:
KroWr or arl|c|paled lulure erp|oyee |ayolls.
Recerl or arl|c|paled crarges lo erp|oyee corpersal|or or oerel|l
p|ars.
Prorol|ors, corpersal|or, or olrer reWards |rcors|slerl W|lr
expeclal|ors.
0pportunities
Cerla|r craracler|sl|cs or c|rcurslarces ray |rcrease lre suscepl|o|||ly ol
assels lo r|sappropr|al|or. For exarp|e, opporlur|l|es lo r|sappropr|ale
assels |rcrease Wrer lrere are lre lo||oW|rg:
Large arourls ol casr or rard or processed.
lrverlory |lers lral are sra|| |r s|ze, ol r|gr va|ue, or |r r|gr derard.
Eas||y corverl|o|e assels, sucr as oearer oords, d|arords, or corpuler
cr|ps.
F|xed assels Wr|cr are sra|| |r s|ze, rar|elao|e, or |ac||rg ooservao|e
|derl|l|cal|or ol oWrersr|p.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-71
lradequale |rlerra| corlro| over assels ray |rcrease lre suscepl|o|||ly ol
r|sappropr|al|or ol lrose assels. For exarp|e, r|sappropr|al|or ol assels
ray occur oecause lrere |s lre lo||oW|rg:
lradequale segregal|or ol dul|es or |rdeperderl crec|s.
lradequale overs|grl ol ser|or raragererl experd|lures, sucr as
lrave| ard olrer re|roursererls.
lradequale raragererl overs|grl ol erp|oyees respors|o|e lor
assels, lor exarp|e, |radequale superv|s|or or ror|lor|rg ol rerole
|ocal|ors.
lradequale joo app||carl screer|rg ol erp|oyees W|lr access lo assels.
lradequale record |eep|rg W|lr respecl lo assels.
lradequale sysler ol aulror|zal|or ard approva| ol lrarsacl|ors (lor
exarp|e, |r purcras|rg).
lradequale prys|ca| saleguards over casr, |rveslrerls, |rverlory, or
l|xed assels.
Lac| ol corp|ele ard l|re|y recorc|||al|ors ol assels.
Lac| ol l|re|y ard appropr|ale docurerlal|or ol lrarsacl|ors, lor
exarp|e, cred|ls lor rercrard|se relurrs.
Lac| ol rardalory vacal|ors lor erp|oyees perlorr|rg |ey corlro|
lurcl|ors.
lradequale raragererl urderslard|rg ol |rlorral|or lecrro|ogy,
Wr|cr erao|es |rlorral|or lecrro|ogy erp|oyees lo perpelrale a
r|sappropr|al|or.
lradequale access corlro|s over auloraled records, |rc|ud|rg corlro|s
over ard rev|eW ol corpuler syslers everl |ogs.
Attitudes/Rationalizations
0|sregard lor lre reed lor ror|lor|rg or reduc|rg r|s|s re|aled lo
r|sappropr|al|ors ol assels.
0|sregard lor |rlerra| corlro| over r|sappropr|al|or ol assels oy
overr|d|rg ex|sl|rg corlro|s or oy la|||rg lo correcl |roWr |rlerra| corlro|
del|c|erc|es.
8erav|or |rd|cal|rg d|sp|easure or d|ssal|slacl|or W|lr lre erl|ly or |ls
lrealrerl ol lre erp|oyee.
Crarges |r oerav|or or ||lesly|e lral ray |rd|cale assels rave oeer
r|sappropr|aled.
To|erarce ol pelly lrell.
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-72
Appendix 2
(Rel: Para. A10)
Examp|es of Poss|b|e Aud|t Procedures to Address the
Assessed R|sks of Hater|a| H|sstatement 0ue to Fraud
Tre lo||oW|rg are exarp|es ol poss|o|e aud|l procedures lo address lre
assessed r|s|s ol raler|a| r|sslalererl due lo lraud resu|l|rg lror oolr
lraudu|erl l|rarc|a| reporl|rg ard r|sappropr|al|or ol assels. A|lrougr
lrese procedures cover a oroad rarge ol s|lual|ors, lrey are or|y exarp|es
ard, accord|rg|y lrey ray rol oe lre rosl appropr|ale ror recessary |r
eacr c|rcurslarce. A|so lre order ol lre procedures prov|ded |s rol
|rlerded lo rel|ecl lre|r re|al|ve |rporlarce.
6ons|derat|on at the Assert|on Leve|
3pec|l|c resporses lo lre aud|lor's assessrerl ol lre r|s|s ol raler|a|
r|sslalererl due lo lraud W||| vary deperd|rg upor lre lypes or
coro|ral|ors ol lraud r|s| laclors or cord|l|ors |derl|l|ed, ard lre c|asses ol
lrarsacl|ors, accourl oa|arces, d|sc|osures ard asserl|ors lrey ray allecl.
Tre lo||oW|rg are spec|l|c exarp|es ol resporses:
v|s|l|rg |ocal|ors or perlorr|rg cerla|r lesls or a surpr|se or
urarrourced oas|s. For exarp|e, ooserv|rg |rverlory al |ocal|ors
Wrere aud|lor allerdarce ras rol oeer prev|ous|y arrourced or
courl|rg casr al a parl|cu|ar dale or a surpr|se oas|s.
Requesl|rg lral |rverlor|es oe courled al lre erd ol lre reporl|rg
per|od or or a dale c|oser lo per|od erd lo r|r|r|ze lre r|s| ol
rar|pu|al|or ol oa|arces |r lre per|od oelWeer lre dale ol corp|el|or
ol lre courl ard lre erd ol lre reporl|rg per|od.
A|ler|rg lre aud|l approacr |r lre currerl year. For exarp|e, corlacl|rg
rajor cuslorers ard supp||ers ora||y |r add|l|or lo serd|rg Wr|ller
corl|rral|or, serd|rg corl|rral|or requesls lo a spec|l|c parly W|lr|r ar
orgar|zal|or, or see||rg rore or d|llererl |rlorral|or.
Perlorr|rg a dela||ed rev|eW ol lre erl|ly's quarler-erd or year-erd
adjusl|rg erlr|es ard |rvesl|gal|rg ary lral appear urusua| as lo ralure
or arourl.
For s|gr|l|carl ard urusua| lrarsacl|ors, parl|cu|ar|y lrose occurr|rg al
or rear year-erd, |rvesl|gal|rg lre poss|o|||ly ol re|aled parl|es ard lre
sources ol l|rarc|a| resources supporl|rg lre lrarsacl|ors.
Perlorr|rg suoslarl|ve ara|yl|ca| procedures us|rg d|saggregaled dala.
For exarp|e, corpar|rg sa|es ard cosl ol sa|es oy |ocal|or, ||re ol
ous|ress or rorlr lo expeclal|ors deve|oped oy lre aud|lor.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-73
Corducl|rg |rlerv|eWs ol persorre| |rvo|ved |r areas Wrere a r|s| ol
raler|a| r|sslalererl due lo lraud ras oeer |derl|l|ed, lo oola|r lre|r
|rs|grls aooul lre r|s| ard Wrelrer, or roW, corlro|s address lre r|s|.
wrer olrer |rdeperderl aud|lors are aud|l|rg lre l|rarc|a| slalererls
ol ore or rore suos|d|ar|es, d|v|s|ors or orarcres, d|scuss|rg W|lr lrer
lre exlerl ol Wor| recessary lo oe perlorred lo address lre assessed
r|s| ol raler|a| r|sslalererl due lo lraud resu|l|rg lror lrarsacl|ors
ard acl|v|l|es arorg lrese corporerls.
ll lre Wor| ol ar experl oecores parl|cu|ar|y s|gr|l|carl W|lr respecl lo a
l|rarc|a| slalererl |ler lor Wr|cr lre assessed r|s| ol r|sslalererl
due lo lraud |s r|gr, perlorr|rg add|l|ora| procedures re|al|rg lo sore
or a|| ol lre experl's assurpl|ors, relrods or l|rd|rgs lo delerr|re lral
lre l|rd|rgs are rol urreasorao|e, or ergag|rg arolrer experl lor lral
purpose.
Perlorr|rg aud|l procedures lo ara|yze se|ecled oper|rg oa|arce sreel
accourls ol prev|ous|y aud|led l|rarc|a| slalererls lo assess roW
cerla|r |ssues |rvo|v|rg accourl|rg esl|rales ard judgrerls, lor
exarp|e, ar a||oWarce lor sa|es relurrs, Were reso|ved W|lr lre oerel|l
ol r|rds|grl.
Perlorr|rg procedures or accourl or olrer recorc|||al|ors prepared oy
lre erl|ly, |rc|ud|rg cors|der|rg recorc|||al|ors perlorred al |rler|r
per|ods.
Perlorr|rg corpuler-ass|sled lecrr|ques, sucr as dala r|r|rg lo lesl
lor arora||es |r a popu|al|or.
Tesl|rg lre |rlegr|ly ol corpuler-produced records ard lrarsacl|ors.
3ee||rg add|l|ora| aud|l ev|derce lror sources ouls|de ol lre erl|ly
oe|rg aud|led.
8pec|f|c Responses-H|sstatement Resu|t|ng from Fraudu|ent
F|nanc|a| Report|ng
Exarp|es ol resporses lo lre aud|lor's assessrerl ol lre r|s|s ol raler|a|
r|sslalererl due lo lraudu|erl l|rarc|a| reporl|rg are as lo||oWs:
Revenue Recognition
Perlorr|rg suoslarl|ve ara|yl|ca| procedures re|al|rg lo reverue us|rg
d|saggregaled dala, lor exarp|e, corpar|rg reverue reporled oy rorlr
ard oy producl ||re or ous|ress segrerl dur|rg lre currerl reporl|rg
per|od W|lr corparao|e pr|or per|ods. Corpuler-ass|sled aud|l
lecrr|ques ray oe uselu| |r |derl|ly|rg urusua| or urexpecled reverue
re|al|orsr|ps or lrarsacl|ors.
Corl|rr|rg W|lr cuslorers cerla|r re|evarl corlracl lerrs ard lre
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-74
aoserce ol s|de agreererls, oecause lre appropr|ale accourl|rg oller
|s |rl|uerced oy sucr lerrs or agreererls ard oas|s lor reoales or lre
per|od lo Wr|cr lrey re|ale are oller poor|y docurerled. For exarp|e,
acceplarce cr|ler|a, de||very ard payrerl lerrs, lre aoserce ol lulure
or corl|ru|rg verdor oo||gal|ors, lre r|grl lo relurr lre producl,
guararleed resa|e arourls, ard carce||al|or or relurd prov|s|ors oller
are re|evarl |r sucr c|rcurslarces.
lrqu|r|rg ol lre erl|ly's sa|es ard rar|el|rg persorre| or |r-rouse |ega|
course| regard|rg sa|es or sr|prerls rear lre erd ol lre per|od ard
lre|r |roW|edge ol ary urusua| lerrs or cord|l|ors assoc|aled W|lr
lrese lrarsacl|ors.
8e|rg prys|ca||y preserl al ore or rore |ocal|ors al per|od erd lo
ooserve goods oe|rg sr|pped or oe|rg read|ed lor sr|prerl (or relurrs
aWa|l|rg process|rg) ard perlorr|rg olrer appropr|ale sa|es ard
|rverlory cul-oll procedures.
For lrose s|lual|ors lor Wr|cr reverue lrarsacl|ors are e|eclror|ca||y
|r|l|aled, processed, ard recorded, lesl|rg corlro|s lo delerr|re
Wrelrer lrey prov|de assurarce lral recorded reverue lrarsacl|ors
occurred ard are proper|y recorded.
lnventory 0uantities
Exar|r|rg lre erl|ly's |rverlory records lo |derl|ly |ocal|ors or |lers
lral requ|re spec|l|c allerl|or dur|rg or aller lre prys|ca| |rverlory
courl.
0oserv|rg |rverlory courls al cerla|r |ocal|ors or ar urarrourced
oas|s or corducl|rg |rverlory courls al a|| |ocal|ors or lre sare dale.
Corducl|rg |rverlory courls al or rear lre erd ol lre reporl|rg per|od
lo r|r|r|ze lre r|s| ol |rappropr|ale rar|pu|al|or dur|rg lre per|od
oelWeer lre courl ard lre erd ol lre reporl|rg per|od.
Perlorr|rg add|l|ora| procedures dur|rg lre ooserval|or ol lre courl,
lor exarp|e, rore r|gorous|y exar|r|rg lre corlerls ol ooxed |lers,
lre rarrer |r Wr|cr lre goods are slac|ed (lor exarp|e, ro||oW
squares) or |aoe|ed, ard lre qua||ly (lral |s, pur|ly, grade, or
corcerlral|or) ol ||qu|d suoslarces sucr as perlures or spec|a|ly
crer|ca|s. us|rg lre Wor| ol ar experl ray oe re|plu| |r lr|s regard.
Corpar|rg lre quarl|l|es lor lre currerl per|od W|lr pr|or per|ods oy
c|ass or calegory ol |rverlory, |ocal|or or olrer cr|ler|a, or corpar|sor
ol quarl|l|es courled W|lr perpelua| records.
us|rg corpuler-ass|sled aud|l lecrr|ques lo lurlrer lesl lre corp||al|or
ol lre prys|ca| |rverlory courlslor exarp|e, sorl|rg oy lag ruroer lo
lesl lag corlro|s or oy |ler ser|a| ruroer lo lesl lre poss|o|||ly ol |ler
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-75
or|ss|or or dup||cal|or.
Management Estimates
us|rg ar experl lo deve|op ar |rdeperderl esl|rale lor corpar|sor lo
raragererl's esl|rale.
Exlerd|rg |rqu|r|es lo |rd|v|dua|s ouls|de ol raragererl ard lre
accourl|rg deparlrerl lo corrooorale raragererl's ao|||ly ard |rlerl
lo carry oul p|ars lral are re|evarl lo deve|op|rg lre esl|rale.
8pec|f|c Responses-H|sstatements 0ue to H|sappropr|at|on of
Assets
0|ller|rg c|rcurslarces Wou|d recessar||y d|clale d|llererl resporses.
0rd|rar||y, lre aud|l resporse lo ar assessed r|s| ol raler|a| r|sslalererl
due lo lraud re|al|rg lo r|sappropr|al|or ol assels W||| oe d|recled loWard
cerla|r accourl oa|arces ard c|asses ol lrarsacl|ors. A|lrougr sore ol lre
aud|l resporses roled |r lre lWo calegor|es aoove ray app|y |r sucr
c|rcurslarces, lre scope ol lre Wor| |s lo oe ||r|ed lo lre spec|l|c
|rlorral|or aooul lre r|sappropr|al|or r|s| lral ras oeer |derl|l|ed.
Exarp|es ol resporses lo lre aud|lor's assessrerl ol lre r|s| ol raler|a|
r|sslalererls due lo r|sappropr|al|or ol assels are as lo||oWs:
Courl|rg casr or secur|l|es al or rear year-erd.
Corl|rr|rg d|recl|y W|lr cuslorers lre accourl acl|v|ly (|rc|ud|rg cred|l
rero ard sa|es relurr acl|v|ly as We|| as dales payrerls Were rade)
lor lre per|od urder aud|l.
Ara|yz|rg recover|es ol Wr|ller-oll accourls.
Ara|yz|rg |rverlory srorlages oy |ocal|or or producl lype.
Corpar|rg |ey |rverlory ral|os lo |rduslry rorr.
Rev|eW|rg supporl|rg docurerlal|or lor reducl|ors lo lre perpelua|
|rverlory records.
Perlorr|rg a corpuler|zed ralcr ol lre verdor ||sl W|lr a ||sl ol
erp|oyees lo |derl|ly ralcres ol addresses or prore ruroers.
Perlorr|rg a corpuler|zed searcr ol payro|| records lo |derl|ly
dup||cale addresses, erp|oyee |derl|l|cal|or or lax|rg aulror|ly
ruroers or oar| accourls.
Rev|eW|rg persorre| l||es lor lrose lral corla|r ||ll|e or ro ev|derce ol
acl|v|ly, lor exarp|e, |ac| ol perlorrarce eva|ual|ors.
Ara|yz|rg sa|es d|scourls ard relurrs lor urusua| pallerrs or lrerds.
Corl|rr|rg spec|l|c lerrs ol corlracls W|lr lr|rd parl|es.
0ola|r|rg ev|derce lral corlracls are oe|rg carr|ed oul |r accordarce
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-76
W|lr lre|r lerrs.
Rev|eW|rg lre propr|ely ol |arge ard urusua| experses.
Rev|eW|rg lre aulror|zal|or ard carry|rg va|ue ol ser|or raragererl
ard re|aled parly |oars.
Rev|eW|rg lre |eve| ard propr|ely ol experse reporls suor|lled oy
ser|or raragererl.
The Auditor's Responsibilities Relating to Fraud
SA 240(Revised) IV-77
Appendix 3
(Rel: Para. A18)
Examp|es of 6|rcumstances that |nd|cate the Poss|b|||ty
of Fraud
Tre lo||oW|rg are exarp|es ol c|rcurslarces lral ray |rd|cale lre
poss|o|||ly lral lre l|rarc|a| slalererls ray corla|r a raler|a| r|sslalererl
resu|l|rg lror lraud.
0|screparc|es |r lre accourl|rg records, |rc|ud|rg:
Trarsacl|ors lral are rol recorded |r a corp|ele or l|re|y rarrer or
are |rproper|y recorded as lo arourl, accourl|rg per|od, c|ass|l|cal|or,
or erl|ly po||cy.
ursupporled or uraulror|zed oa|arces or lrarsacl|ors.
Lasl-r|rule adjuslrerls lral s|gr|l|carl|y allecl l|rarc|a| resu|ls.
Ev|derce ol erp|oyees' access lo syslers ard records |rcors|slerl
W|lr lral recessary lo perlorr lre|r aulror|zed dul|es.
T|ps or corp|a|rls lo lre aud|lor aooul a||eged lraud.
Corl||cl|rg or r|ss|rg ev|derce, |rc|ud|rg:
V|ss|rg docurerls.
0ocurerls lral appear lo rave oeer a|lered.
urava||ao|||ly ol olrer lrar prolocop|ed or e|eclror|ca||y lrarsr|lled
docurerls Wrer docurerls |r or|g|ra| lorr are expecled lo ex|sl.
3|gr|l|carl urexp|a|red |lers or recorc|||al|ors.
urusua| oa|arce sreel crarges, or crarges |r lrerds or |rporlarl
l|rarc|a| slalererl ral|os or re|al|orsr|ps, lor exarp|e, rece|vao|es
groW|rg lasler lrar reverues.
lrcors|slerl, vague, or |rp|aus|o|e resporses lror raragererl or
erp|oyees ar|s|rg lror |rqu|r|es or ara|yl|ca| procedures.
urusua| d|screparc|es oelWeer lre erl|ly's records ard corl|rral|or
rep||es.
Large ruroers ol cred|l erlr|es ard olrer adjuslrerls rade lo
accourls rece|vao|e records.
urexp|a|red or |radequale|y exp|a|red d|llererces oelWeer lre
accourls rece|vao|e suo-|edger ard lre corlro| accourl, or oelWeer lre
cuslorer slalererls ard lre accourls rece|vao|e suo-|edger.
V|ss|rg or ror-ex|slerl carce||ed crec|s |r c|rcurslarces Wrere
carce||ed crec|s are ord|rar||y relurred lo lre erl|ly W|lr lre oar|
Handbook of Auditing Pronouncements-I
SA 240(Revised) IV-78
slalererl.
V|ss|rg |rverlory or prys|ca| assels ol s|gr|l|carl ragr|lude.
urava||ao|e or r|ss|rg e|eclror|c ev|derce, |rcors|slerl W|lr lre erl|ly's
record relerl|or pracl|ces or po||c|es.
FeWer resporses lo corl|rral|ors lrar arl|c|paled or a grealer ruroer
ol resporses lrar arl|c|paled.
lrao|||ly lo produce ev|derce ol |ey syslers deve|oprerl ard prograr
crarge lesl|rg ard |rp|ererlal|or acl|v|l|es lor currerl-year sysler
crarges ard dep|oyrerls.
Proo|eral|c or urusua| re|al|orsr|ps oelWeer lre aud|lor ard
raragererl, |rc|ud|rg:
0er|a| ol access lo records, lac|||l|es, cerla|r erp|oyees, cuslorers,
verdors, or olrers lror Wror aud|l ev|derce r|grl oe sougrl.
urdue l|re pressures |rposed oy raragererl lo reso|ve corp|ex or
corlerl|ous |ssues.
Corp|a|rls oy raragererl aooul lre corducl ol lre aud|l or
raragererl |rl|r|dal|or ol ergagererl lear reroers, parl|cu|ar|y |r
correcl|or W|lr lre aud|lor's cr|l|ca| assessrerl ol aud|l ev|derce or |r
lre reso|ul|or ol polerl|a| d|sagreererls W|lr raragererl.
urusua| de|ays oy lre erl|ly |r prov|d|rg requesled |rlorral|or.
urW||||rgress lo lac|||lale aud|lor access lo |ey e|eclror|c l||es lor
lesl|rg lrrougr lre use ol corpuler-ass|sled aud|l lecrr|ques.
0er|a| ol access lo |ey lT operal|ors slall ard lac|||l|es, |rc|ud|rg
secur|ly, operal|ors, ard syslers deve|oprerl persorre|.
Ar urW||||rgress lo add or rev|se d|sc|osures |r lre l|rarc|a| slalererls
lo ra|e lrer rore corp|ele ard urderslardao|e.
Ar urW||||rgress lo address |derl|l|ed Wea|resses |r |rlerra| corlro| or
a l|re|y oas|s.
0lrer
urW||||rgress oy raragererl lo perr|l lre aud|lor lo reel pr|vale|y
W|lr lrose crarged W|lr goverrarce.
Accourl|rg po||c|es lral appear lo oe al var|arce W|lr |rduslry rorrs.
Frequerl crarges |r accourl|rg esl|rales lral do rol appear lo resu|l
lror crarged c|rcurslarces.
To|erarce ol v|o|al|ors ol lre erl|ly's Code ol Corducl.