IAASB issues new draft on fraud

At a recent meeting in New York, the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) approved the release of an exposure draft of an International Standard on Auditing entitled "The auditor's responsibility to consider fraud in an audit of financial statements" (ISA 240). It also approved the release of a second ED, "Planning the audit" (ISA 300) and issued amended terms of reference and a preface to its standards.

Responsibility for considering fraud
The primary responsibility for the prevention and detection of fraud, says the ED, rests with both those charged with governance and management of the entity. The proposed ISA requires the auditor to respond to the presumed risk of improper revenue recognition and the risk of management override of controls. This response includes:
- testing the appropriateness of journal entries;
- reviewing the accounting estimates for biases;
- obtaining an understanding of the business rationale for significant transactions
outside the normal course of business for the entity.

Highlighting IAASB's independence
The IAASB's new preface to "International standards on quality control, auditing, assurance and related services" clarifies the board's role as an independent standard-setting body under the auspices of IFAC, highlights its public interest responsibilities and emphasizes its objective of achieving convergence of standards by working closely with national standard-setters.

New guidance for audit planning
The ED on audit planning complements the IAASB's proposed guidance on audit risk issued in October 2002. It provides new guidance on matters the auditor should consider before performing significant planning activities: client acceptance and retention; ethical requirements, including independence and communications with prior auditors; and the terms of the audit engagement.

The exposure drafts may be viewed by going to www.ifac.org/EDs. Comments must be submitted by November 15, 2003 to Edcomments@ifac.org, faxed to the IAASB Technical Director at +1-212-286-9570 or mailed to the IAASB Technical Director at IFAC, 545 Fifth Avenue, 14th Floor, NY, NY 10017.

The preface can be accessed at www.ifac.org/iaasb under "2003 Publications."