Revised ISA 240 Delivers Clearer Responsibilities, Stronger Risk Response, and Improved Transparency
The International Auditing and Assurance Standards Board (IAASB) has revised International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. The updated standard responds to global scrutiny and stakeholder concern regarding the auditor’s role in detecting fraud. The revised standard clarifies the auditor’s responsibilities, emphasizes a fraud lens in the auditor’s risk identification and assessment and the appropriate responses to assessed risks, and provides greater transparency in the auditor’s reports of publicly traded entities.
In developing the revised standard, the IAASB undertook an extensive global consultation with regulators, users of financial statements, standard setters, and auditors across firm sizes and geographies. The revised standard’s structure incorporates scalability and proportionality to support consistent and effective application across a range of audit engagements.
“These revisions directly address core public interest concerns regarding fraud,” said IAASB Chair Tom Seidenstein. “By clarifying responsibilities, strengthening how auditors assess and respond to fraud risks, and enhancing transparency in reporting, the revised standard better supports high audit quality and delivers more decision-useful information to users of financial statements.”
“Stakeholders made it clear: achieving consistency was necessary, but not sufficient,” said Julie Corden, former IAASB member and Chair of the IAASB Fraud Task Force. “This standard represents a practical and meaningful shift in how auditors assess and respond to fraud risks.”
Key Enhancements in ISA 240 (Revised)
The standard incorporates the following elements:
- Clearer Auditor Responsibilities – Strengthens and clarifies what auditors are expected to do when addressing risks relating to fraud.
- Reinforced Professional Skepticism – Introduces new requirements to elevate the consistency and effective practice of professional skepticism across all stages of the audit.
- Sharper Fraud Risk Assessment – Requires a focused “fraud lens” when identifying and addressing risks, with stronger links to related standards.
- More Effective Fraud Responses – Establishes a new section with clearer, enhanced requirements to guide how auditors respond to identified or suspected fraud.
- Improved Transparency and Communication – Emphasizes timely communication with management and those charged with governance, with clearer disclosures in the auditor’s report.
The revisions also align with ISA 570 (Revised 2024), Going Concern, recognizing that fraud and financial distress are often interrelated risks that must be addressed together to bolster corporate transparency and resilience.
Effective Date and Resources
ISA 240 (Revised) becomes effective for audits of financial statements for periods beginning on or after December 15, 2026. To support implementation, the IAASB has published a fact sheet and Basis for Conclusions, available on its website here. A video series will follow in the coming weeks.
The IAASB encourages jurisdictions to consider early adoption of ISA 240 (Revised), ISA 570 (Revised 2024), and the forthcoming narrow-scope amendments for publicly traded entities as a cohesive package. Together, these standards provide a stronger, more coordinated response to the risks of fraud and financial distress.
About the IAASB
The International Auditing and Assurance Standards Board develops auditing, assurance, related services, and quality management standards and guidance in the public interest that support consistent performance of quality engagements. Along with the International Ethics Standards Board for Accountants, the IAASB is part of the International Foundation for Ethics and Audit. The Public Interest Oversight Board oversees IAASB and IESBA activities and the public interest responsiveness of the standards. For copyright, trademark, and permissions information, please visit Permissions