AICPA Seeks Comment on Proposed Update to Auditors’ Responsibilities Related to Fraud

NEW YORK (July 3, 2025) -- The American Institute of CPAs’ Auditing Standards Board (ASB) is seeking public comment on a proposed standard updating auditors’ responsibilities related to fraud.

The proposed Statement on Auditing Standards (SAS), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, contains a number of changes, including the establishment of required procedures for when an auditor has identified fraud or suspected fraud. The proposed SAS also reminds auditors to maintain professional skepticism throughout the audit.

“This exposure draft doesn’t alter the overall objectives of the auditor when fraud or suspected fraud is identified,” said Jennifer Burns, the AICPA’s chief auditor. “What it does is strengthen and clarify the auditor’s specific role in these circumstances. Management, those charged with governance and auditors all have important responsibilities, and when everyone diligently executes those responsibilities, an organization is best positioned to identify fraud.”

Comments about the exposure draft are due by Oct. 3, 2025. If issued as final, the proposed SAS would supersede SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, as amended, section 240, Consideration of Fraud in a Financial Statement Audit (AU-C Section 240), and amend several other standards.

The exposure draft is the product of more than three years of outreach and research by an ASB task force, which also considered alignment of the proposed standard, where appropriate, with a similar project by the International Auditing and Assurance Standards Board (IAASB). The ASB also continues to monitor a similar project at the Public Company Accounting Oversight Board (PCAOB).

Proposed changes in the exposure draft include:

• New requirements to clarify the auditor’s response when fraud or suspected fraud is identified in an audit of financial statements, which are among the most significant changes in the proposed SAS.

• Additional guidance to explain the relationship of fraud with corruption, bribery, and money laundering, as well as fraud committed against an entity by third parties.

• A new requirement that emphasizes the importance of remaining alert throughout the audit for information that is indicative of fraud or suspected fraud.

• A new requirement for the engagement partner, when addressing engagement resources, to determine that members of the engagement team collectively have the appropriate competence and capabilities, including sufficient time and appropriate skills or knowledge, to perform the audit.

• A broadening of the requirement for an auditor to perform a retrospective review of management judgments and assumptions related to accounting estimates reflected in the financial statements of the prior year, and not just those of significant accounting estimates.

• A new requirement for the auditor to treat the risk of management override of controls as a risk of material misstatement due to fraud at the financial statement level and to determine whether such risk affects the assessment of risks at the assertion level.

• An enhanced requirement for an auditor to take into account related fraud risk factors when determining which types of revenue, revenue transactions, or relevant assertions give rise to risks of material misstatement due to fraud.

• Auditors are concerned with a material misstatement of financial statements due to fraud, and the proposed standard clarifies that even when an identified misstatement due to fraud is not “quantitatively material,” it may nevertheless be “qualitatively material” depending on who instigated or perpetrated the fraud (such as management) and why the fraud was perpetrated.

• Requirements regarding communications with management and the governing body throughout the audit engagement.

If issued as final, the proposed SAS would be effective for audits of financial statements for periods ending on or after December 15, 2028, with early implementation permitted.

For more information about the ASB and its activities, please visit the board’s resource page.