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Objective
Consider whether AS 2401, Consideration of Fraud in a Financial Statement Audit, should be revised to better align the auditor’s responsibilities for identifying, assessing, and addressing the risk of material misstatement due to fraud with recent developments in practice.
Background
The Sarbanes-Oxley Act was enacted in response to a series of high-profile corporate scandals involving financial reporting fraud that undermined public trust in the financial markets. Throughout its history, the PCAOB has devoted substantial attention to the auditor’s responsibilities regarding fraud.
The PCAOB incorporated requirements for identifying and responding to fraud risks in its foundational risk assessment standards. By doing so, the PCAOB made it clear that assessing and responding to fraud risks is an integral part of the audit.
Subsequently issued PCAOB standards addressed matters that were implicated in numerous financial reporting frauds, including related party transactions, significant unusual transactions, and a company’s financial relationships and transactions with its executive officers.
To help auditors understand their responsibilities under PCAOB standards, the PCAOB issues a number of staff publications including Staff Practice Alerts and Spotlights discussing the consideration of fraud in an audit. These and other resources are available on the Fraud Risk Resources webpage.
Recent corporate scandals continue to raise questions about the effectiveness of auditor response to the risk of material misstatement due to fraud. This project is considering potential revisions to existing requirements, taking into account observations from the Board's oversight activities, audit firms' methodologies, academic research, recent reporting trends, the activities of other standard setters and regulators, and information from investors and other stakeholders.
Status
The staff is analyzing relevant information and developing a proposal for the Board's consideration.
