1. Scope of application
Auditing Standard No. 240 prescribes and guides the auditor's responsibilities. and corporate auditing (hereinafter referred to as an "auditor") for fraud in the audit of financial statements.
In particular, this Standard also prescribes and provides additional guidance on how to apply Vietnamese Auditing Standards No. 315 and No. 330 to risks of material misstatement due to fraud.
2. Characteristics of fraud
Errors in the financial statements can arise from fraud or error. To differentiate between fraud and error, it is important to consider whether the conduct that led to errors in the financial statements is intentional or unintentional.
Although fraud is a very broad legal concept, for the purposes of the auditing standards, the auditor is only concerned with fraud that results in material misstatements in the financial statements. There are two types of intentional misstatements that the auditor needs to be concerned with: misstatements resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets.
Although the auditor may suspect or in rare cases identify fraud, the auditor is not required to make a legal determination as to whether fraud actually exists (see guidance in paragraphs A1–A6 of this Standard).
3. Responsibility for preventing and detecting fraud
The prevention and detection of fraud is primarily the responsibility of the Board of Directors and Management of the audited entity. It is important that the Board of Directors, with the oversight of the Board of Directors, pay particular attention to fraud prevention in order to reduce the opportunities for fraud and to detect fraud, thereby dissuading individuals from committing fraud because of the possibility of detection and punishment.
This responsibility includes a commitment to creating a culture of honesty and ethical behavior that can be reinforced by active oversight by those charged with governance. In carrying out its oversight responsibilities, those charged with governance should consider the potential for overriding controls or improper influence over the financial reporting process, such as management’s attempts to manipulate financial results to mislead analysts about the entity’s performance and profitability.
Responsibilities of auditors
When performing an audit in accordance with Vietnamese Standards on Auditing, the auditor is responsible for obtaining reasonable assurance that the financial statements, as a whole, remain material misstatement due to fraud. either confused or not. Due to the inherent limitations of the audit, there is an unavoidable risk that the auditor cannot detect some errors that materially affect the financial statements, even after the audit has been prepared. plan and comply with the Vietnamese Auditing Standards (see paragraph A51 on Vietnamese Auditing Standards No. 200).
As mentioned in paragraph A51 of ISA 200, the effects of inherent limitations are particularly serious for misstatements due to fraud. The risk of material misstatement due to fraud is higher than the risk of material misstatement due to error. This is because fraud can be committed through sophisticated and well-organized tricks to conceal fraudulent acts, such as falsifying records, intentionally not recording transactions, or intentionally providing false representations to the auditor. Concealment can be even more difficult to detect when there is collusion to commit fraud. Collusion can make the auditor believe that audit evidence is convincing when in fact it is false. The auditor's ability to detect fraud depends on factors such as the skill of the perpetrator, the frequency and extent of the manipulation, the degree of collusion, the value of the manipulated funds, and the rank of the individuals committing the fraud.
Although auditors can identify opportunities for fraud, it is difficult to determine whether misstatements in the areas they review, such as accounting estimates, are due to fraud or error.
In addition, the risk of the auditor's failure to fully discover material misstatement resulting from management fraud is greater than that of the employee, because the manager regularly has the conditions to directly or indirectly manipulate accounting entries, present fraudulent financial information, or override procedures of control established to prevent similar fraudulent acts of other employees.
To achieve reasonable assurance, the auditor shall maintain professional skepticism throughout the audit, considering the ability of management to override controls and be aware of the fact that Auditing procedures to effectively detect confusion may not be effective in detecting fraud. The requirements of this Auditing Standard are intended to assist the auditor in identifying and assessing the risks of material misstatement of fraud and to establish procedures to detect such error.
The auditor and the firm shall comply with the requirements of this Standard in the course of performing the audit of financial statements.
The entity (the customer) and the parties using the results of the audit are required to have an understanding of the requirements in this International Standard in order to coordinate their work with the firm and the auditor, and management of the relationships related to the information that has been audited.
See full text Standard No. 240