ASB approves standard on auditors’ responsibilities relating to fraud

The AICPA Auditing Standards Board on Thursday approved a new standard that enhances and clarifies auditor responsibilities for identifying fraud or suspected fraud in a financial statement audit.

Statement on Auditing Standards (SAS) No. 151, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, strengthens audit procedures related to fraud while reinforcing that management and those responsible for governance of an entity remain primarily responsible for preventing and detecting fraud.

The new standard adds more specific requirements designed to improve auditor skepticism, fraud risk assessment, documentation, communication, and responses when fraud is identified or suspected. What remains unchanged are the definition of fraud and the auditor’s overall objective of obtaining reasonable assurance that financial statements are free of material misstatement due to fraud or error.

“It is critical for auditors to remain alert to the possibility of fraud throughout an audit engagement,” said Jennifer Burns, CPA, the AICPA’s chief auditor. “This standard reinforces the importance of professional skepticism and provides clearer direction for how auditors should respond when fraud is identified or suspected.”

SAS No. 151 will be published in October and will be effective for audits of financial statements for periods ending on or after Dec. 15, 2028. Early implementation is permitted.

The new standard:

• Enhances the auditor’s risk identification and assessment process as it relates to fraud by providing a fraud lens when performing risk assessment procedures in accordance with AU-C section 315.
• Requires the auditor to understand the entity’s whistleblower program (or other program to report fraud), if the entity has such a program, including how management and, if applicable, those charged with governance address allegations of fraud made through the program.
• Adds requirements governing how auditors respond when fraud or suspected fraud is identified, and more extensive requirements regarding communications with management and those charged with governance.
• Leaves unchanged the presumption that fraud risks exist in revenue recognition, and requires auditors to determine which types of revenue transactions, or relevant assertions give rise to such risks.