ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

Brydon recommendations: A package of measures around fraud detection and prevention

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Anne Adrain, Head of Sustainability and Assurance

19 December 2019

Main points:

  • Sir Donald Brydon has proposed a package of measures around the detection and prevention of fraud.
  • His report recommends that ISA (UK) 240 should be revised to make it clear that it is the obligation of the auditor to endeavour to detect material fraud in all reasonable ways.
  • The package proposes further measures including the establishment of an Independent Auditor Fraud Panel to impartially investigate cases of fraud.

Following the publication of Sir Donald Brydon’s final report on his Independent Review into the Quality and Effectiveness of Audit, this article summarises his proposal for a package of measures around fraud detection and prevention.

In his report, Sir Donald Brydon has stated that he has found the issue of fraud, and the auditor’s related responsibilities, the most complex and most commonly misunderstood in relation to auditors’ duties.

The issue of fraud is dealt with in International Standard on Auditing (ISA) (UK) 240 (Revised) – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, and requires the auditor to obtain reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.

In Sir Donald’s opinion, this message is somewhat ambiguous resulting in a lack of clarity in exactly what is expected of the auditor in relation to fraud. ISA (UK) 240 (Revised) states that it is the directors who are primarily responsible for the detection and prevention of fraud and that it is less likely that the auditor will be able to detect a material misstatement arising from fraud, than one resulting from error, as the former may involve the use of sophisticated methods designed to try to conceal it. It is here, according to Sir Donald, that the confusion arises. There is a gap between what is expected of the auditors in relation to obtaining reasonable (high but not absolute) assurance on the truth and fairness of the financial statements and what is required of them under ISA 240. Users often therefore question why the auditor has been unable to detect a material fraud that has had a significant impact on the financial statements. The auditors’ response that their responsibility only goes as far as providing reasonable assurance that a material misstatement does not exist is not well understood and, in Sir Donald’s opinion, is not satisfactory.

Sir Donald has, therefore, recommended that the proposed new UK Regulator, the Audit Reporting and Governance Authority (ARGA), should amend ISA (UK) 240 (Revised) to make it clear “that it is the obligation of an auditor to endeavour to detect material fraud in all reasonable ways”.

The report also proposes a requirement on directors to “report on the actions they have taken to fulfil their obligations to prevent and detect material fraud against the background of their fraud risk assessment”.

Sir Donald has also recommended that training in forensic accounting and fraud awareness should be included in both the formal training syllabus and continuing professional development provided for those training and practising as financial statement auditors.

In addition, the report contains a proposal to include an explicit statement in the auditor’s report on the work they have performed on the director’s statement of the actions taken by them to prevent and detect material fraud and the appropriateness of this statement. The auditor should also state the steps they have taken in their assessment of the effectiveness of the relevant controls and to detect any such fraud.

A further recommendation is for the proposed new UK regulatory body, ARGA, to maintain a publicly available case study register containing details of past corporate frauds in order that auditors can learn from these examples.

Sir Donald acknowledges in his report that, often, the failure to detect a material fraud is “judged in hindsight in a prejudiced manner”. In order to appropriately assess the culpability of the auditor in such cases, the report recommends the establishment of an Independent Auditor Fraud Panel, which is both impartial and reasonable, to fully investigate the circumstances around the fraud and impose any appropriate sanctions on the auditor.

In Sir Donald’s opinion, the introduction of this package of measures will go a long way towards helping restore confidence in the role of auditors in relation to the detection and prevention of fraud.

Brydon review on quality and effectiveness of audit published

By James Barbour, Director, Policy Leadership

18 December 2019

Shaping the future of audit

17 March 2019

2022-11-mitigo 2022-11-mitigo
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: