The International Auditing and Assurance Standards Board (IAASB) has officially approved the revised ISA 240 standard, fundamentally changing the approach to detecting fraud when auditing financial statements. The new rules will apply to financial periods beginning on or after 15 December 2026. For the auditing profession, this sends a clear signal: the era in which auditors could defend themselves by stating that they are not forensic investigators is coming to an end. The responsibility to actively identify fraudulent conduct is being significantly increased.
An end to blind trust in management
A key pillar of the reform is a major strengthening of professional scepticism. The standard deliberately removes previous wording that allowed auditors to automatically assume that documents provided by management were genuine. Auditors will now be required to apply a so-called “Fraud Lens” and critically assess the authenticity of all key audit evidence. The range of employees at different levels of the organisation whom auditors are required to interview is also being expanded in order to identify potential internal indications of misconduct.
Greater transparency in the auditor’s report
The changes will also have a significant impact on investors, banks and the public. For listed companies and public interest entities (PIEs), the standard introduces mandatory transparency directly in the auditor’s report. Auditors will be required to explicitly describe the specific fraud risks identified during the engagement and the specific audit procedures performed to address those risks.
Link to the risk of business failure
The new ISA 240 has been deliberately coordinated with the revised ISA 570 standard on Going Concern. In practice, financial fraud and sudden insolvencies often go hand in hand. If an auditor discovers data manipulation – for example, the fictitious inflation of revenue – they must immediately reassess whether the company will be able to continue operating over the next 12 months.
For audit teams, this means one thing above all: a significant increase in documentation requirements, greater use of advanced data analytics tools and a much more rigorous approach to examining client data.
