Identifying and responding to risks of material misstatement due to fraud.
To identify and assess the risks of material misstatement of the financial statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks through designing and implementing appropriate responses, and to respond appropriately to fraud or suspected fraud identified during the audit.
SA 240 sits in the Risk Assessment phase of the audit. The Standards on Auditing are issued by the ICAI Auditing and Assurance Standards Board (AASB) and deemed to be prescribed by the Central Government under Section 143(10) of the Companies Act 2013. Compliance with SAs is mandatory for every audit conducted by a Chartered Accountant in India.
For authoritative text, refer to the ICAI AASB Compendium of Standards on Auditing at icai.org.
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SA 240 — Auditor's Responsibilities Relating to Fraud — is a Standard on Auditing issued by the ICAI Auditing and Assurance Standards Board. Identifying and responding to risks of material misstatement due to fraud. To identify and assess the risks of material misstatement of the financial statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks through designing and implementing appropriate responses, and to respond appropriately to fraud or suspected fraud identified during the audit.
Yes. Standards on Auditing are deemed to be prescribed under Section 143(10) of the Companies Act 2013, and ICAI members must comply with them in every audit of historical financial information. Non-compliance must be justified and can attract professional consequences in peer review, NFRA inspection, and disciplinary proceedings.
Documentation sufficient for an experienced auditor with no previous connection to the audit to understand what was done and why (SA 230). For SA 240 in the risk assessment phase, that means evidencing: Engagement team discussion of fraud risk (required); Inquiries of management and TCWG on suspected / known fraud; Identification of fraud risk factors (incentives, opportunities, rationalisations).
