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Date :xx/xx/xxxx
To : Mr Mika
From : xxxx

Subject : Discussion on Audit Objectives and Auditor's Responsibilities in Detecting Fraud as Stipulated Under ISA 240.

Based on my audit knowledge, ISA 240 - The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements effectively be used for periods beginning on or after December 15,2009. However, the firm has been used “A Practical Manual for Auditors’ Handbook”as a main reference handbook for auditing since 1990 stated that “… the detection of fraud, all errors and unlawful acts committed by the audit client is the responsibility of an auditor”. So, the firm need to change their main reference to handbook of Internal Auditing and Assurance Standards Board in order to conducted in accordance with professional standards as the statement taken from page 15 are not valid to be use.

The firm need to acknowledge the objectives of the auditor according to ISA 240 that are :

a) To identify and assess the risks of material misstatement of the financial statements due to fraud

b) To obtain sufficient appropriate audit evidence regarding the assessed risk of material misstatement due to fraud through designing and implementing appropriate responses; and

c) To respond appropriately to fraud or suspected fraud identified during the audit.

According to ISA 240 under the auditors responsibility, the auditors do not only focus on preventing or detecting fraud or errors but also assess the truth and fairness of the firm’s financial statements. The standard distinguishes fraud from error and describes there are two types of fraud that relevant to the auditor that is misstatement resulting from misappropriation of assets and misstatements resulting from fraudulent financial reporting.

Therefore, the statement from the “Practical Manual for Auditors” cannot be acceptable as the ISA 240 already stated regarding the auditor’s objective and also auditor’s responsibility where the auditor are not responsible for the fraud and error made by the audit client as the audit client been charged with the governance and the management of the entity for the prevention and detection of fraud. The auditor shall communicates with those charged with governance any other matters related to fraud are in the auditor’s judgement, relevant to their responsibilities. (Ref. Para A64).

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Date : xx / xx / xxxx
To : Mr Mika, Mika and Partners
From : Audit Assistant, Mika and Partners
Subject : Discussion on audit objectives and on auditors responsibilities in detecting fraud under ISA 240 )
Based on ‘A Practical Manual for auditors’ handbook , state that “.... the detection of fraud, all errors and unlawful acts committed by the audit clients is responsibility of an auditor. I am not agree with this as it is not stipulated under ISA 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements .
ISA 240 was issues in December 2006 and is effectives for audit of financial statements on or after 15 December 2008. Thus, I highly recommended Mr. MIKA  to change the main reference for auditing to ISA 240 as it is has been a standard in auditing. According to the ISA 240, ‘The primary responsibility for the main prevention detection of fraud rests with both those charged with governance of entity and management”. This shown that auditor is not not fully responsible of their clients.
Next,The audit objectives are ;
1. To identify and assess the risks of material misstatement of the financial statements due to fraud.
2. To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses.
3. To respond appropriately to fraud or suspected fraud identified during the audit

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Date: 1/10/2019

To: Mr Mika, Mika and Partners

From: Ali, Audit Assistant , Mika and Partners

Subject: Discussion on Audit Objectives and An Auditor’s Responsibilities in Detecting Fraud (under ISA 240)

Due to the misstatement on “A practical Manual for Auditors” handbook, page 15, I would like to discuss on this matter where it is stated that “… the detection of fraud, all errors and unlawful acts committed by the audit client is the responsibility of an auditor”.

I may have to disagree with the statement because it is not up to the current practices as stipulated under ISA 240. It is not the responsibility of the auditor to detect fraud, errors and unlawful acts committed by the clients. Based on ISA 240, this responsibility lies with both those charged with governance of the entity and also management. Those charged with governance and the management are the ones who should have the commitment and efforts to  inculcate culture of honesty and ethical behavior.

Under ISA 240, things that have been established are the basic principles and essential procedures, and the guidelines of auditor's responsibilities to consider fraud in any financial reporting.

Audit process helps to enhance the management's discipline in the improvement of internal control over financial reporting. Auditor should be independent of the management and the entity as a whole.

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https://www.mia.org.my › ppt › auditing › standards › ISA › ISA240