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

During planning of the audit of Kestrel Retail Ltd, the engagement team discusses where the financial statements might be susceptible to material misstatement due to fraud. Under ISA 240, which statement about this discussion is correct?

The discussion is mandatory for every audit. ISA 240 requires the team to consider how fraud could occur, setting aside any belief that management is honest and has integrity, so that professional skepticism is maintained throughout the engagement.

  1. AIt is required, and it must set aside the belief that management is honest and has integrityCorrect
  2. BIt is optional where the client has an internal audit function
  3. CIt should be held only by the engagement partner to preserve confidentiality
  4. DIt is required only for listed entities

Explanation

ISA 240 requires the engagement team to discuss the susceptibility of the financial statements to material misstatement due to fraud, emphasising professional skepticism and setting aside beliefs that management and those charged with governance are honest. It applies to all audits, not only listed entities, and involves key team members, not only the partner. An internal audit function does not remove the requirement.

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