Appendix No. 6

to the Order of the Ministry of Finance of the Russian Federation of January 9, 2019 No. 2n

The international standard of audit 240 Obligations of the auditor concerning unfair actions when carrying out financial records audit

The International Standard of Audit (ISA) 240 "The auditor's obligations concerning unfair actions when carrying out financial records audit" should be considered together with the MCA 200 standard "Main objectives of the independent auditor and carrying out audit according to International standards of audit".

Introduction

Scope of this standard

1. This International Standard of Audit (ISA) establishes the auditor's obligations concerning unfair actions when carrying out financial records audit. So, in it reveals how it is necessary to apply MCA 315 (reviewed) <1> and MSA 330 <2> to risks of essential misstatement owing to unfair actions.

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<1> MCA 315 (reviewed) "Identification and risks assessment of essential misstatement by means of studying of the organization and its environment".

<2> MCA 330 "Audit procedures in response to the estimated risks".

Characteristics of unfair actions

2. Misstatements in the financial reporting can arise or owing to unfair actions, or owing to mistake. The decisive factor allowing to distinguish unfair actions from mistake is premeditation or not premeditation of those actions which as a result led to misstatement of the financial reporting.

3. In spite of the fact that unfair actions - wide legal concept, for the purposes of International standards of audit concern the auditor such unfair actions which lead to essential misstatement in the financial reporting. For the auditor two types of intentional misstatements - misstatements owing to unfair financial reporting preparation and misstatement owing to illegal assignment of assets are significant. In spite of the fact that the auditor can suspect or, in rare instances, reveal availability of unfair actions, he does not determine from the legal point of view whether unfair actions (see the Items A1 - A 6) really took place.

Responsibility for prevention and detection of unfair actions

4. The main responsibility for prevention and detection of unfair actions is assigned as to persons who are responsible for corporate management and to management of the audited organization. It is important that the management under the supervision of persons who are responsible for corporate management paid priority attention to prevention of unfair actions that could minimize opportunities for their making and promote control therefore employees will prefer not to make them in connection with high probability of detection and punishment. Such responsibility implies commitment to creation of culture of honesty and ethical behavior which can be supported further by active measures for supervision from persons who are responsible for corporate management. Supervision from persons who are responsible for corporate management includes accounting of opportunities of bypass of control facilities or other illegal forms of influence on process of preparation of the financial reporting, such as attempts of management to manage profit for the purpose of influence on how analysts perceive performance indicators and profitability of the organization.

Auditor's obligations

5. The auditor booking audit according to International standards of audit shall receive reasonable confidence that the financial reporting in general does not contain essential misstatement both owing to unfair actions, and owing to mistake. Owing to the integral restrictions inherent in audit, there is inevitable risk that some essential misstatements of the financial reporting can be not revealed even in spite of the fact that audit was carefully planned and carried out according to international standards of audit <3>.

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<3> MCA 200 "Main objectives of the independent auditor and carrying out audit according to International standards of audit", the Items A53 - A54.

6. As it is described by MCA 200 <4>, the potential effect of the integral restrictions is especially considerable in case of misstatement owing to unfair actions. The risk of nondetection of essential misstatement owing to unfair actions is higher, than risk of nondetection of essential misstatement owing to mistake. The reason consists that unfair actions can assume the difficult and carefully built schemes aimed at their concealment such as forgery, intentional not reflection of transactions or intended representation of false information to the auditor. It is more difficult to reveal such attempts of concealment if they are followed by collusion. Collusion can lead to the fact that the auditor will consider that auditor proofs are convincing while actually they are counterfeited. Capability of the auditor to find unfair actions the relative size of the separate amounts which underwent to manipulations and also level of posts of persons involved in unfair actions depends on such factors as skill of the malefactor, frequency and amount of manipulations, extent of the collusion taking place. Though the auditor can be able to reveal potential opportunities for intended making of unfair actions, it is heavy to it to determine whether misstatements of the indicators requiring judgment such as estimative values, unfair actions or mistake are caused.

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<4> MSA 200, Item A53.

7. Moreover, risk that the auditor will not find the essential misstatement caused by unfair actions of management, above than in case of unfair actions of the employee because the management in many cases has opportunity directly or indirectly to manipulate accounting data, to provide counterfeit financial information or to bypass the control procedures aimed at prevention of cases of making of similar unfair actions by other employees.

8. In case of receipt of reasonable confidence the auditor shall adhere to professional scepticism throughout all audit, taking into consideration possibilities of management on bypass of control facilities, and also considering the fact that audit procedures which are productive for detection of mistake, can not yield result in case of detection of unfair actions. Requirements of this standard are designed to help the auditor with identification and risks assessment of essential misstatement owing to unfair actions, and also with development of procedures for identification of such misstatement.

The effective date

9. This standard becomes effective concerning financial records audit for the periods beginning on December 15, 2009 or after this date.

Purposes

10. The purposes of the auditor consist in that:

(a) reveal and estimate risks of essential misstatement of the financial reporting owing to unfair actions;

(b) receive enough competent auditor evidences concerning the estimated risks of essential misstatement owing to unfair actions by development and holding the corresponding procedures;

(c) properly to react to unfair actions or to the suspicions of unfair actions revealed during audit.

Determinations

11. For the purposes of International standards of audit the following terms have the stated below values:

(a) unfair actions - intentional actions of one or several persons from among management, persons who are responsible for corporate management, employees or the third parties made by means of deception for receipt of illegal or illegal benefits;

(b) risk factors of unfair actions - the events or conditions leading to emergence of motivation or pressure directed to making of unfair actions or to possibility of their making.

Requirements

Professional scepticism

12. According to MCA 200 <5> the auditor shall keep professional scepticism throughout all audit, realizing possibility of essential misstatement owing to unfair actions, despite the last experience of the auditor testimonial of honesty and conscientiousness of management of the organization and persons who are responsible for corporate management (see the Items A7 - A 8).

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<5> MSA 200, Item 15.

13. Except as specified, when it has bases for confidence in the return, the auditor can accept records and documents for authentic. If the circumstances revealed during audit force the auditor to think that this or that document can be counterfeit or that conditions of this or that document were changed and this change was not opened to the auditor, the auditor shall conduct additional researches (see Item A 9).

14. If the replies to the requests received from the management or persons who are responsible for corporate management are inconsistent, the auditor shall research such discrepancies.

Discussion between members of auditor group

15. MCA 315 (reviewed) requires carrying out discussion between members of auditor group, and also determination by the head of task of circle of questions which need to be informed those members of auditor group who did not participate in discussion <6>. During this discussion special attention shall be paid to how and in what part the financial reporting of the organization can be subject to essential misstatement owing to unfair actions, and also to how unfair actions can be made. During discussion possible idea of members of auditor group of management and persons who are responsible for corporate management as about fair and fair people shall be ignored (see the Items A10 - A 11).

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<6> MCA 315 (reviewed) Item 10.

Assessment procedures of risks and the accompanying actions

16. When carrying out assessment procedures of risks and the actions connected with it for the purpose of receipt of understanding of the audited organization and its environment, including internal control system of the organization, according to requirements of MCA 315 (reviewed) <7>, for receipt of information necessary for identification of risks of essential misstatement owing to unfair actions, the auditor shall perform the procedures described in Items 17 - 24.

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<7> MCA 315 (reviewed) Items 5 - 24.

Management and other persons in the organization

17. The auditor shall request information from management of the organization for the following questions:

(a) assessment by management of risk that the financial reporting can significantly be distorted owing to unfair actions including nature, amount and frequency of such estimates (see the Items A12 - A 13);

(b) procedures of management for identification of risks of unfair actions in the organization and to response to these risks, including all specific risks of unfair actions which were revealed by management or of which he knew, or transaction types, account balances or disclosure of information concerning which existence of risk of unfair actions (see Item A 14) is probable;

(c) informing by management if such informing took place, persons who are responsible for corporate management, about procedures, the unfair operations performed by management for the purpose of identification of risks in the organizations, and response to these risks;

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