Proposed amendments to audit standards set to place a greater onus on auditors to detect fraud
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The Irish Auditing and Accounting Supervisory Authority ("IAASA") recently issued a consultation paper, outlining IAASA's proposals to amend a current audit standard, which will place a greater onus on auditors to assess companies' financial statements for fraud.
The International Auditing and Assurance Board issue auditing guidelines called International Standards on Auditing ("ISA") which are devised to align auditing around the globe. The standards adopted in Ireland are broadly similar to the standards in the United Kingdom.
In November 2020, the Financial Reporting Council ("FRC") in the UK issued a consultation paper on proposals to revise the standards in the UK. They published revised standards in May 2021. The revised standards are designed to make the auditor's obligations clearer, enhance the risk assessment they carry out, and set clearer requirements for further action. The revised standards placed a greater obligation on auditors to detect fraud.
In light of the amendments made by the FRC in the UK, IAASA intends to adopt the revised UK standards with minimal amendments. IAASA regards the adoption of the revised standards as necessary to 'address issues and concerns that are not unique to the UK market'. The amendments will require auditors to obtain reasonable assurance that company accounts they are assessing do not mislead due to fraud.
Some of the proposed changes (to ISA (Ireland) 240) will include:
- A new paragraph 7-1 which clarifies the auditor's responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement due to fraud;
- Paragraph 14 has been revised to require that, in addition to investigating inconsistent responses to inquiries of management, those charged with governance, or others in the entity, the auditor shall also investigate responses that appear implausible;
- Paragraphs 15-1 and 15-2 specify particular matters to be included in the discussion among the engagement team, including how management could perpetrate and conceal fraudulent financial reporting; how assets of the entity could be misappropriated; and the susceptibility of a significant component in a group audit to material misstatement of the financial information due to fraud.
The proposed effective date of the revised standards in Ireland is for the audits of financial statements with accounting periods beginning on or after 15 December 2021.
It is likely that further amendments will be made in the coming years to international auditing guidelines following the recent discussion paper issued by the International Auditing and Assurance Board on Fraud and Going Concern in an Audit of Financial Statements.
For further information please contact James Roche or Barry Fagan.