SAS No. 43 The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements

Status

Issued by Auditing Standards Committee in Taiwan on 1 September, 2006.

Summary

The purpose of this Statement is to establish standards and provide guidance on the auditor’s responsibility to consider fraud in an audit of financial statements and expand on how the standards and guidance in SAS No. 24 “Materiality and Audit Risk”, SAS No. 32 ”Risk Assessments and Internal Control” and SAS No. 37 “Knowledge of the Client’s Business” are to be applied in relation to the risks of material misstatement due to fraud.

This Statement:

  • Distinguishes fraud from error and describes the two types of fraud (misstatements resulting from fraudulent financial reporting and misstatement from misappropriation of assets) that are relevant to the auditor.
  • Describes the respective responsibilities of those charged with governance and the management of the entity for the prevention and detection of fraud; as well as the inherent limitations of an audit in the context of fraud; and set out the responsibilities of the auditor for detecting material misstatements due to fraud.
  • Requires the auditor to maintain an attitude of professional skepticism recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience with the entity about the honesty and integrity of management and those charged with governance.
  • Requires members of the engagement team to discuss the susceptibility of the entity’s financial statements to material misstatement due to fraud and requires the engagement partner to consider which matters are to be communicated to members of the engagement team not involved in the discussion.
  • Provides guidance on communications with regulatory and enforcement authorities.
  • Provides guidance if, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor’s ability to continue performing the audit.
  • Establishes documentation requirements.
  • Requires the auditor to:
  • Perform procedures to obtain information that is used to identify the risks of material misstatement due to fraud.
  • Identify and assess the risks of material misstatement due to fraud at the financial statement level and the assertion level; and for those assessed risks that could result in a material misstatement due to fraud, evaluate the design of the entity’s related controls, including relevant control activities, and to determine whether they have been implemented.
  • Determine overall responses to address the risks of material misstatement due to fraud at the financial statement level and consider the assignment and supervision of personnel.
  • Design and perform audit procedures to respond to the risk of management override of controls.
  • Determine responses to address the assessed risks of material misstatement due to fraud.
  • Consider whether an identified misstatement may be indicative of fraud.
  • Obtain written representations from management relating to fraud.
  • Communicate with management and those charged with governance.
In planning and performing the audit to reduce audit risk to an acceptable low level, the auditor should consider the risks of material misstatements in the financial statements due to fraud.

Effective date

This Statement is effective for audit of financial statements with a fiscal year ends on or after 31 December, 2006.

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