ISCA Issues SSA 570 (Revised 2024), Going Concern and SSA 240 (Revised), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

Recent corporate failures and high-profile fraud cases have eroded public confidence in financial reporting, prompting renewed calls from investors, regulators and audit professionals for more robust auditing standards, particularly in the areas of going concern and fraud.

In response, Singapore Standard on Auditing (SSA) 570 (Revised 2024), Going Concern and SSA 240 (Revised), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, have been issued to strengthen auditors’ responsibilities in these critical areas. Together, these revised standards reinforce the public interest by enhancing audit quality and delivering more decision-useful information to users of financial statements.

SSA 570 (Revised 2024) addresses the auditor’s responsibilities in the audit of financial statements relating to going concern and the implications for the auditor’s report. SSA 240 (Revised) addresses the auditor’s responsibilities relating to fraud in an audit of financial statements and the implications for the auditor’s report.

Key Revisions – SSA 570 (Revised 2024)

The key revisions made to the extant SSA 570 (Revised) include:

1. Newly added definition for “material uncertainty related to going concern” that explains the phrase “may cast significant doubt”.
   
   
2. Conducting thorough risk assessments to obtain audit evidence that provides an appropriate basis for determining whether events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern. This is an elevation of the extant requirement which focuses on inquiry and discussion. The revised standard also provides clarity that the identification of such events or conditions is before consideration of any related mitigating factors included in management’s plans for future actions.
   
   
3. Evaluating management’s assessment of going concern irrespective of whether events or conditions are identified. In doing so, auditors must consider the potential for management bias and evaluate the underlying method, significant assumptions, and data used when management formed its assessment. 
   
   
4. Extending the auditor’s evaluation period for going concern from at least twelve months from the date of the financial statements to at least twelve months from the date of approval of the financial statements.
   
   
5. Requiring clearer communication in the auditor’s report about the auditor’s responsibilities and work related to going concern in a separate section and strengthening communications with those charged with governance.
   
   
6. New requirement for the auditor to evaluate both the intent and ability of management to carry out specific courses of action in their plans for future actions and new requirement for the auditor to obtain audit evidence about such intent and ability if financial support is provided by  third or related parties. 
   

Key Revisions – SSA 240 (Revised)

The key revisions made to the extant SSA 240 (Revised) strengthens and clarifies what auditors are expected to do when addressing risks relating to fraud. They include:

a. Introducing new requirements to elevate the consistency and effective practice of professional skepticism across all stages of the audit, which include requirements to:

• Design and perform audit procedures in a manner that is not biased towards obtaining audit evidence that either corroborates or contradicts management’s assertions.
  
• Stand-back requirement that requires the auditor to evaluate, before conclusion of the audit, whether the assessments of the risk of material misstatements (RoMMs) due to fraud remain appropriate and whether sufficient appropriate audit evidence has been obtained to respond to the assessed RoMMs due to fraud.
  

b. Requiring a focused “fraud lens” when identifying and addressing risks, with stronger links to related standards. This includes:

• Introducing a requirement to obtain an understanding of the entity’s whistleblower programme.
• Strengthening requirements and application material related to presumption of fraud risk in revenue recognition by shifting the focus away from the auditor developing a rebuttal and by emphasising the limited circumstances when it may be appropriate to rebut the presumption.