IAASB revises auditor fraud standard

The International Auditing and Assurance Standards Board has revised its standard on the auditor's responsibilities relating to fraud only days after the American Institute of CPAs' Auditing Standards Board proposed an update to its own standard.

The revised International Standard on Auditing (ISA) 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements comes in response to greater scrutiny and concern around the world about the auditor's role in detecting fraud. The IAASB proposed the revisions last year.

The revised standard clarifies the auditor's responsibilities, stresses a fraud lens in the auditor's risk identification and assessment and the appropriate responses to assessed risks, and provides more transparency in the auditor's reports of publicly traded entities.

In developing the revised standard, the IAASB went through an extensive global consultation with regulators, users of financial statements, standard setters, and auditors across firms of various sizes and geographies. The revised standard's structure incorporates scalability and proportionality to support consistent and effective application across a range of audit engagements.

"These revisions directly address core public interest concerns regarding fraud," said IAASB chair Tom Seidenstein in a statement. "By clarifying responsibilities, strengthening how auditors assess and respond to fraud risks, and enhancing transparency in reporting, the revised standard better supports high audit quality and delivers more decision-useful information to users of financial statements."

The standard includes clearer auditor responsibilities to strengthen and clarify what auditors are expected to do when addressing risks relating to fraud. It sets new requirements to elevate the consistency and effective practice of professional skepticism throughout all stages of an audit. The revised standard requires a focused "fraud lens" when identifying and addressing risks, with stronger links to related standards. It establishes a new section with clearer, enhanced requirements to guide how auditors respond to identified or suspected fraud. The revised version emphasizes timely communication with management and those charged with governance, with clearer disclosures in the auditor's report.

"Stakeholders made it clear: achieving consistency was necessary, but not sufficient," said Julie Corden, a former IAASB member and chair of the IAASB Fraud Task Force, in a statement. "This standard represents a practical and meaningful shift in how auditors assess and respond to fraud risks."

The revisions align with ISA 570 (Revised 2024), Going Concern, as fraud and financial distress can often be interrelated risks that should be addressed together to strengthen corporate transparency and resilience.

ISA 240 (Revised) takes effect for audits of financial statements for periods starting on or after Dec. 15, 2026. To support implementation, the IAASB has published a fact sheet and Basis for Conclusions that are available on its website. The IAASB plans a video series in the weeks ahead.

The IAASB is encouraging jurisdictions to consider early adoption of ISA 240 (Revised), ISA 570 (Revised 2024), and the upcoming narrow-scope amendments for publicly traded entities as a cohesive package to provide a stronger, more coordinated response to the risks of fraud and financial distress.

The AICPA's Auditing Standards Board has considered aligning with the IAASB's standard, and it's been monitoring a similar project at the Public Company Accounting Oversight Board, known as the noncompliance with laws and regulations or NOCLAR standard, which the PCAOB has halted for this year after a backlash from auditing firms and business groups.