Objective
To identify and assess the risks of material misstatement of the financial statements due to fraud, and to obtain sufficient appropriate audit evidence regarding the assessed risks through designing and implementing appropriate responses.
Key requirements
- Engagement team discussion of fraud risk (required)
- Inquiries of management and TCWG on suspected / known fraud
- Identification of fraud risk factors (incentives, opportunities, rationalisations)
- Default presumption of fraud risk in revenue recognition
- Required journal entry testing — including manual JVs, late-period adjustments, unusual accounts
- Communication of identified or suspected fraud to TCWG; reporting under Section 143(12) if applicable
Typical procedures
- Full-population scan of journal entries for unusual patterns (weekend posts, round numbers, manual JVs, debits to revenue)
- Test of management override controls
- Retrospective review of accounting estimates for management bias
- Investigation of significant unusual transactions
Common pitfalls
- Treating "no whistle-blower complaint" as adequate fraud risk assessment
- Sampling-based JE testing where SA 240 actually requires risk-based selection from the whole population
- Failing to report material fraud under Section 143(12) in Form ADT-4 within 60 days
On CORAA
Full-population JE testing across the year — last-minute manuals, weekend posts, round numbers, related-party rings. Flagged items go to Findings with the SA 240 tag.
Open the matching module →SA 240 in practice
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.
