The scope of ISA 265

Published: 2022-12-09
The scope of ISA 265
Type of paper:  Essay
Categories:  Company Finance Business Analysis Technology
Pages: 5
Wordcount: 1352 words
12 min read

International Standards Audit (ISA) 265 deals with the auditor's duties and responsibilities while appropriately communicating to those individuals in governance and internal control (Knechel & Salterio, 2016). It is after the auditor has unearthed such scandals of his auditing duty of the statements of finance within an organization. It was birthed from the Clarity Projects of IAASB.

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Categorization and Definition of Control Deficiencies

Internal Control Deficiency

It is designed and implemented in a way that it can detect any misstatements in the financial statements hence correcting them (Brusca, Caperchione, Cohen, & Rossi, 2016).

Significant Risk

This is an already identified and analyzed material risk misstatement which in the auditor's judgment it requires urgent and special audit considerations (Brusca et al., 2016).

Business Risk

It is a threat which is occurring from a core event, action or a circumstance which adversely impact an organization to meet and execute all its objectives and other strategies it has in the plan (Knechel & Salterio, 2016).


Assertions are the management representations embodied in audit meeting of an organization that an auditor uses to consider the various types of misstatements that may occur (Knechel & Salterio, 2016).

Duties and Responsibilities of the Auditor in Detecting Internal Control Deficiencies

The auditor is supposed to establish all the risks by critically analyzing and understanding the organization and specific controls which relate to the organization's threats, account for all the balances and other disclosures in the statements of finance. He is responsible for assessing the established risks and find out if they pervasively relate or affect the financial statements of the firm (Brusca et al., 2016). He also has to consider the possibilities of triple misstatements and if the magnitude of their threats can result in a material misstatement. The auditor also has to give assurance that the internal controls used in financial reporting are well tested and effective (Knechel & Salterio, 2016).

Factors That Determine Internal Control Deficiencies

A variety of factors impact internal control efficiency; among them are integrity and ethical values supported within an organization. It is also affected by the commitment and competence of the workforce. The outlined policies and procedures also impact its functionality. The management style adopted and the form of leadership has also been found to have an impact on these deficiencies (Knechel & Salterio, 2016).

Significant Elements of Auditors Written Findings

The auditor's results have a variety of features. To begin with, it contains the disclosure findings, both the previous and the current ones. The written findings are always independent and without any form of colluding and favors. The results are still original (Brusca et al., 2016).

The Scope of ISA 240

It is an auditing standard set to help auditors freely and independently audit firms and. Press t independent findings to the management for further legal actions in case of fraudulent activities (Messier, 2016).

Features of fraud

Misstatements in organization's statements of finance could be as a result of either an error or fraud. Fraud is a deliberate act of persons charged with governance to gain an unjust advantage in a firm. It is characterized by the intention and misappropriation of organization resources. It can also take the form of concealing vital information from the rest of the members of an entity for selfish gains. Fraud is a criminal offense (Kassem & Higson, 2016). The two major types of intentional misstatements are essential to the auditor -distortions occurring from fraudulent financial reporting and errors relating to misappropriation of organizations assets and other resources (Messier, 2016).

Responsibilities of Management in Detecting Fraud

The auditing standard, the control is the key player in preventing and detecting any form of cheating (Messier, 2016). Among the responsibilities, the administration has included establishing an honest environment where any types of fraud are unacceptable. Cases of frauds need to be punished severely by the management so that such incidents do not root in the organization (Messier, 2016). The administration also has to find out any risks associated with fraud and make necessary steps in ensuring that all the members within an organization are carrying out their duties as assigned to them. The management also has to set up high moral standards to curb any I'll fraud activities that may harm the organization. Adequate resources also need to be provided by the management and appoint an independent auditor who can keenly monitor the flow of all the funds assigned (Kassem & Higson, 2016).

Auditor's Responsibilities in the Prevention of Fraud

The hired auditor has a duty and responsibility of acquiring all the reasonable assurance that show the financial statements within an organization are free from any form of material misstatement. Whether resulting from error or fraud. Therefore, he has the responsibility of checking the risks of material misstatement arising from cases of fraud. To achieve this, the auditor must uphold an attitude of professional skepticism in his activities (Kassem & Higson, 2016). This means that the assigned auditor must be able to identify the possibility that a material misstatement resulting from fraud can occur, irrespective of the prior experience of the individual's honesty and integrity levels he showed previously. The auditor can also cross-check all the financial statement of the organizations a d reveal any forms of fraud that may have taken place (Messier, 2016). By exposing the fraudsters for punishment, he will be limiting any further possibilities of such activities as employees will refrain from such actions due to fear of being punished and need to uphold integrity hence maintaining reputation (Messier, 2016).

Procedure for Auditing Fraud in Financial Statements

In identifying a potentially fraudulent activity in a firm, the auditor starts with risk assessment. He needs to question the management team by applying professional skepticism to analyze their responses. He also needs to engage the internal audit team and inquiry the steps they used to audit the financial statements of that particular organization. With this, the auditor should be able to identify individuals charged with governance within the organization set up. After assessing the risk factors, the auditor will have to identify and analyze the risks relating to any possible form of fraud in the material misstatement (Knechel & Salterio, 2016). The assertion and financial statement levels for different classes of transactions and balances will be analyzed. He will then respond to the investigated risks of material misstatement originating from fraudulent activities. The overall response of the management team and the internal aiding team will be addressed by maintaining the professional skepticism (Messier, 2016).

The auditor will then verify out an assessment of the findings obtained to come up with a conclusive decision which needs to be backed up by concrete evidence. Upon pinpointing of the misstatement, the auditor will decide whether fraud is indicative in the statement or not and outline the needed course of action regarding the organization audit activities. The auditor will then hold a communication process with the management and all the individuals charged with governance to explore the findings and the necessary legal steps to be undertaken (Kassem & Higson, 2016).


Brusca, I., Caperchione, E., Cohen, S., & Rossi, F. M. (Eds.). (2016). Public sector accounting and auditing in Europe: The challenge of harmonization. Springer. Retrieved from

Kassem, R., & Higson, A. W. (2016). External auditors and corporate corruption: Implications for foreign audit regulators. Current Issues in Auditing, 10(1), P1-P10. Retrieved from

Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge. Retrieved from

Messier Jr, W. (2016). Auditing & assurance services: A systematic approach. McGraw-Hill Higher Education. Retrieved from

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