What is the auditor responsibility relating to fraud in audit of financial statements?

 

Misstatements in the financial statements can arise due to fraud or error. Error is unintentional misstatement in financial statements, including the omission of an amount or a disclosure.

Fraud is intentional act made by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unfair or illegal benefit.


There two types of intentional misstatements that are relevant to the auditor. The first type is misstatements resulting from fraudulent financial reporting and the second one is misstatements resulting from misappropriation of assets. Usually, the auditor does not make legal determinations of whether fraud has occurred, even if the auditor may suspect or identify the occurrence of fraud.

The primary responsibility for the prevention and detection of fraud leaves with both those charged with governance of the entity and management. An auditor conducting an audit in accordance with applicable standards of auditing is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.

ISA 240 deals with the auditor’s responsibilities relating to fraud in an audit of financial statements.


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