International Federation of Accountants (IFAC) International Auditing Practices Committee (IAPC) recently approved an updated International Standard on Auditing (ISA) on fraud and error and a new International Auditing Practice Statement (IAPS) on auditing derivatives.
Fraud and Error
The new ISA, The Auditor’s Responsibility to Consider Fraud and Error in an Audit of Financial Statements, updates and expands on previous IAPC guidance. It applies to audits of financial periods ending on or after June 30, 2002. Specifically, the standard emphasizes that when planning and performing an audit procedure, the auditor should consider the risk of material misstatements in the financial statements resulting from fraud and error.
The new standard also:
- Emphasizes the distinction between management fraud and employee fraud and expands the discussion of fraudulent financial reporting; and
- Includes guidance on the need to obtain management’s assessment of the risk of fraud; and
- Clarifies the discussion of the inherent limitations of an audit’s ability to detect fraud.
During its meeting in March, the IAPC also agreed to move ahead on Phase 2 of the fraud project. Essentially, this entails the IAPC working closely with the US Auditing Standards Board (ASB) to expand on the existing fraud standard and to consider additional basic principles to meet the US Public Oversight Board’s recommendations for specific fraud directed procedures in an audit.
Derivatives
The new IAPS Auditing Derivative Financial Instruments provides guidance to the auditor in planning and performing auditing procedures for assertions about derivative financial instruments. The focus of the practice statement is on auditing derivatives held by end users, including banks and other financial sector entities when they are the user.
In addition to addressing auditor responsibilities with respect to assertions about derivatives, the new statement also addresses –
- Responsibility of management and those charged with governance;
- Key financial risks;
- Risk assessment and internal control, including the role of internal auditing; and
- Various types of substantive procedures and when they should be used.
Both the new International Standard on Auditing and International Auditing Practice Statement may be ordered and downloaded from IFAC’s website at http://www.ifac.org/store. Print copies may be obtained by faxing the IFAC publications coordinator at +1 (212) 226 9570.