Advanced Audit and Assurance (International) · Other current issues

Fraud, Going Concern and Auditor Responsibilities Reform for ACCA AAA

Updated 11 October 2026 · Fact-checked

The expectation gap is the difference between what users think auditors do and what auditors are required to do. Reform debates on ISA 240 (fraud) and ISA 570 (going concern) ask whether auditors should do more. To answer, state the current duty, the public expectation, the proposed change, and its costs.

Understand Fraud, Going Concern and Auditor Responsibilities Reform

Start with the expectation gap. Users of financial statements often believe an audit guarantees accuracy, finds all fraud and warns of every company failure. In fact, an audit gives reasonable assurance, not absolute assurance. The auditor reports on whether the financial statements are free from material misstatement.

The gap has three parts. The knowledge gap is users misunderstanding the audit. The performance gap is auditors not meeting the standards that already exist. The standards gap is users wanting more than the standards require. Reform mostly targets the last two.

On fraud, management and those charged with governance have primary responsibility for preventing and detecting it. The auditor must obtain reasonable assurance that the statements are free from material misstatement, whether caused by fraud or error. Fraud is harder to detect than error because it can involve concealment and collusion. Collusion and management override of controls are the main reasons an audit may miss it.

On going concern, management assesses the entity's ability to continue. The auditor evaluates that assessment, considers whether a material uncertainty exists, and checks that disclosure is adequate. The auditor does not predict the future, so a clean report is not a guarantee of survival.

After high-profile corporate collapses, regulators, investors and governments have pressed for change. IAASB has revised the standards on fraud and going concern. Treat the detail of the revised requirements as something to check against your current ACCA study materials. The exam rewards a reasoned discussion more than recall of paragraph numbers. Typical ideas under debate include more rigorous challenge of management's going concern assessment, a longer assessment period, stronger scepticism, more fraud-focused procedures, and clearer reporting to users on what the auditor did.

Key rules to remember

Expectation gap: Expectation gap = Knowledge gap + Performance gap + Standards gap; Use this to structure any discussion of why users are disappointed by audits.
Assurance level: Audit = reasonable assurance (high, but not absolute); Never say an audit guarantees that no fraud exists.
Responsibility split for fraud: Prevention and detection = management and TCWG; reasonable assurance on material misstatement = auditor; State both sides. Auditors are not responsible for preventing fraud.
Going concern responsibility split: Management assesses and discloses; auditor evaluates and concludes; Auditor concludes on appropriateness of the going concern basis and whether a material uncertainty exists.
Reform argument structure: Current duty → public expectation → proposed change → benefit → cost; A reliable shape for any written discussion.

How to solve Fraud, Going Concern and Auditor Responsibilities Reform questions

Use this method for any question on fraud, going concern or the expectation gap reform.

1Read the requirement and note the verb: discuss, explain, evaluate or advise. Also note who the audience is.
2State the current position briefly: who is responsible and what level of assurance the auditor gives.
3Identify the gap using the scenario: knowledge, performance or standards. Link it to a fact in the case.
4Set out the proposed or revised responses, such as more procedures, more scepticism, wider reporting or longer assessment periods.
5Give both sides: benefits such as public confidence, and costs such as higher fees, longer audits, and the limits of what auditors can detect.
6Apply the points to the scenario and name the specific red flags or going concern indicators given.
7Finish with a reasoned conclusion or recommendation, in the format asked, to earn professional skills marks.

Quickest way: Four-line gap answer

When to use it: When time is short and you need a structured discussion of the reform debate.

Line 1: define the expectation gap and give its three parts.
Line 2: state the current duty, reasonable assurance, and management's primary responsibility.
Line 3: give two proposed changes and one benefit and one cost of each.
Line 4: add a scenario link and a clear conclusion.

Common mistakes in Fraud, Going Concern and Auditor Responsibilities Reform

Saying the auditor is responsible for preventing and detecting fraud.
Students mix up the auditor's role with management's.
Fix: Say management and TCWG are primarily responsible. The auditor obtains reasonable assurance on material misstatement.
Claiming an audit guarantees the company will continue as a going concern.
A clean opinion feels like a health certificate.
Fix: Explain that the opinion is about the financial statements and that the auditor cannot predict future events.
Listing reforms without discussing downsides.
Students assume reform is always good.
Fix: Add the cost side: higher fees, more work, possible over-reliance on auditors, and the limits of detection.
Reciting standard paragraph details from memory with no application.
Students prepare knowledge rather than argument.
Fix: Use the scenario facts and make a judgement. Accuracy on principles matters more than detail.
Treating the expectation gap as only users misunderstanding.
Students remember only the knowledge gap.
Fix: Include the performance gap and the standards gap, and say which fits the case.

Worked examples

Example 1

A listed company collapses six months after receiving an unmodified audit opinion. Shareholders say the auditor should have predicted it. Explain the expectation gap that this illustrates.

Show the solution

Define the gap: the difference between what users expect from an audit and what auditors are required to do.
Knowledge gap: shareholders may not realise that the audit gives reasonable assurance on the financial statements and is not a prediction of survival.
Standards gap: they may want auditors to give a forward-looking warning, which current standards do not require beyond evaluating management's assessment and disclosures.
Performance gap: ask whether the auditor properly challenged management's going concern assessment. If not, the failure is in performance, not the standards.
Conclude that the gap may be partly knowledge and partly standards. Better communication in the auditor's report could narrow it.

Answer: The collapse shows an expectation gap. The auditor gives reasonable assurance on the financial statements and evaluates management's going concern assessment. It does not predict failure. The gap can be narrowed by clearer reporting, but only a performance review would show whether the audit itself fell short.

Example 2

Regulators propose that auditors should perform more procedures to detect fraud. Evaluate the proposal for a mid-sized audit firm.

Show the solution

State the current position: management is primarily responsible for fraud, and the auditor gives reasonable assurance on material misstatement.
Benefits: more fraud-focused procedures, stronger scepticism and better use of data analytics could increase detection and public confidence.
Costs: more audit time and higher fees, which mid-sized firms may struggle to pass on to clients.
Limits: collusion, forged documents and management override can still evade detection, so the gap may not close fully.
Alternative or complement: stronger governance and better communication with TCWG, so responsibility is shared.
Conclude with a recommendation.

Answer: The proposal could improve detection and confidence, but it increases cost and cannot remove the inherent limits of an audit. I would support it if it is proportionate and paired with stronger management and governance responsibility, with clear communication to users of what the auditor does.

Exam tips

Write about responsibility in two columns of thought: management and TCWG, then the auditor. Examiners expect both.
Use scenario facts such as red flags, dominant management or poor cash flow, rather than generic points.
Balance every reform argument with a cost or limitation. One-sided answers lose marks.
Check current ACCA examiner reports and your study materials for the latest standard revisions. Do not invent detail.
Use the professional skills marks: be concise, structured and commercially aware, and give a clear recommendation.

Practice questions from Other current issues

Fraud, Going Concern and Auditor Responsibilities Reform in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Fraud, Going Concern and Auditor Responsibilities Reform: frequently asked questions

What is the audit expectation gap?

It is the difference between what users believe auditors do and what auditors are required to do. It has knowledge, performance and standards parts. Reform debates aim to narrow it.

Is the auditor responsible for detecting all fraud?

No. Management and those charged with governance are primarily responsible for preventing and detecting fraud. The auditor obtains reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.

Does an unmodified opinion mean the company will continue as a going concern?

No. It means the financial statements are presented fairly in all material respects. The auditor evaluates management's assessment and disclosures but cannot guarantee future survival.

How should I handle revised ISA 240 and ISA 570 in the exam?

Focus on the principles: stronger scepticism, better challenge of management, clearer responsibilities and better reporting. Check your current ACCA materials for the exact revised requirements, then apply them to the scenario with a balanced view.