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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error

Brandt Co's audit team is debating the auditor's responsibility regarding a misstatement that may be fraud. Which statement correctly reflects ISA 240?

The auditor seeks reasonable assurance that the financial statements are free from material misstatement, whether from fraud or error, without making legal determinations of fraud. Responsibility for preventing and detecting fraud rests primarily with management and those charged with governance, not the auditor.

  1. AThe auditor must make legal determinations of whether fraud has actually occurred
  2. BThe auditor is responsible for preventing fraud through design of internal controls
  3. CThe auditor obtains reasonable assurance that financial statements are free from material misstatement, whether from fraud or error, but does not make legal determinations of fraudCorrect
  4. DThe auditor has no responsibility for fraud if management has set up an effective whistleblowing system

Explanation

ISA 240 states the auditor obtains reasonable assurance about material misstatement due to fraud or error, but does not make legal determinations of whether fraud has occurred. Prevention and detection primarily rest with management and those charged with governance. A whistleblowing system does not remove auditor responsibility.

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