From IAASB to PCAOB: How Auditors Around the World Are Fighting Fraud

 

In today’s increasingly interconnected financial landscape, fraud detection remains a central concern in auditing, prompting evolving standards across major global jurisdictions. With the revision of ISA 240 by the International Auditing and Assurance Standards Board (IAASB), it is more important than ever to understand how other leading territories—including the United States (PCAOB), United Kingdom (FRC), and Canada (AASB)—approach fraud risk within the audit process.

This article explores and compares the core fraud-related auditing standards governing each of these jurisdictions, highlighting similarities, distinctions, and emerging trends that are reshaping the auditor’s role worldwide.

International Standard: ISA 240 (Revised Draft – 2024)

Overview:

• Title: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

• Issued by: International Auditing and Assurance Standards Board (IAASB)

• Status: Revised exposure draft issued in 2024; final approval expected in 2025.

Key Features:

• Reinforces professional skepticism across all audit phases.

• Introduces enhanced fraud risk assessment, even for non-material misstatements.

• Mandates unpredictable audit procedures and journal entry testing.

• Encourages transparent communication with governance bodies.

• Promotes scalability for audits of less complex entities (LCEs).

• Emphasizes the need to document how fraud concerns were addressed.

ISA 240 aims to create a global benchmark for fraud-focused audit procedures. Its current revision addresses longstanding concerns about the effectiveness of audits in detecting complex, concealed, or collusive fraud.

United States: PCAOB AS 2401

Overview:

• Title: Consideration of Fraud in a Financial Statement Audit

• Issued by: Public Company Accounting Oversight Board (PCAOB)

• Status: Currently effective

Key Features:

• Requires fraud risk brainstorming sessions within the audit team.

• Strong emphasis on evaluating management override of controls.

• Mandates extensive journal entry testing, especially at period-end.

• Auditors must identify and assess fraud risk factors, such as pressure, opportunity, and rationalization (aligned with the fraud triangle).

• Includes detailed guidance for inquiries of management, internal audit, and audit committees.

Distinguishing Aspect:
PCAOB AS 2401 is known for its regulatory enforcement rigor. Audits of public companies are subject to inspection, making adherence to fraud procedures critically important for audit firms operating in the U.S.

3. United Kingdom: ISA (UK) 240

Overview:

• Title: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

• Issued by: Financial Reporting Council (FRC)

• Status: Revised in 2021; effective from 2022.

Key Features:

• Auditors must explicitly describe their approach to fraud in the audit report.

• Stronger requirement to challenge management’s assumptions and representations.

• Encourages collaboration with those charged with governance to assess the risk of fraud.

• Auditors must assess and document the ethical climate and culture of the organization.

• Reflects the UK’s growing emphasis on restoring public trust in audit following high-profile collapses (e.g., Carillion, Patisserie Valerie).

Distinguishing Aspect:
ISA (UK) 240 places a greater reporting obligation on auditors compared to most other jurisdictions, reflecting the UK’s push toward audit transparency and accountability.

4. Canada: CAS 240

Overview:

• Title: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

• Issued by: Auditing and Assurance Standards Board (AASB)

• Status: Aligned with ISA 240

Key Features:

• Nearly identical to ISA 240 (2018 version) in structure and content.

• Tailored to Canadian legal and regulatory requirements.

• Emphasizes dialogue with governance bodies and integration of fraud risks in audit planning.

• Encourages thorough documentation and critical evaluation of management responses.

Distinguishing Aspect:
While CAS 240 currently mirrors ISA 240, it is expected that Canada will adopt the 2025 ISA 240 revision, incorporating features like scalability and enhanced fraud skepticism.

Comparative Matrix of Fraud Auditing Standards

Key Takeaways for Practitioners

1. Regulatory Environments Matter:
   U.S. and UK standards have strict inspection regimes, pushing firms to over-deliver on fraud responsibilities. This creates a high-compliance, high-accountability landscape.

2. Transparency is Trending:
   The UK is leading the charge in making fraud procedures more visible in the audit report, and ISA 240 (Revised) is following that path.

3. Scalability and Adaptability are Crucial:
   The push for flexible standards for less complex entities (LCEs)—as seen in ISA 240 (Revised)—reflects the evolving nature of the profession and the need for proportionate auditing.

4. Global Alignment is Growing:
   Despite differences, most jurisdictions now align conceptually on the key principles of fraud risk identification, skepticism, documentation, and communication.

A Global Shift Toward Fraud-Focused Audit Integrity

Auditing standards around the world are converging toward a more vigilant and fraud-sensitive audit model. As financial reporting becomes more complex and public scrutiny intensifies, auditors are being equipped—and expected—to play a more decisive role in fraud detection and deterrence.

Whether operating under ISA, PCAOB, FRC, or AASB frameworks, the message is clear: Fraud is no longer a peripheral concern in audits—it is central to audit quality and public trust.

References

• IAASB Exposure Draft of ISA 240 (2024)

• PCAOB AS 2401: Consideration of Fraud

• FRC: Revised ISA (UK) 240 Guidance (2022)

• AASB Handbook: Canadian Auditing Standards