ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is the underlying philosophy for ISA 240 regarding a culture of honesty?

1. To maintain leniency in auditing practices

2. To support a commitment to ethical behavior

3. To focus solely on profit maximization

4. To reduce costs in auditing

The correct answer is: To support a commitment to ethical behavior

The underlying philosophy of ISA 240 emphasizes the importance of a commitment to ethical behavior within an organization. This standard addresses the auditor's responsibility to consider the risk of fraud in financial statements and highlights the necessity of fostering a culture of honesty and integrity. By emphasizing ethical behavior, ISA 240 seeks to ensure transparency and accountability within the financial reporting process. This commitment involves not only the practices of the auditors themselves but also encourages organizations to cultivate an environment where integrity is valued. Such a culture can help in reducing the likelihood of fraudulent activities, hence promoting a reliable and trustworthy financial reporting framework. Other choices, such as maintaining leniency in auditing practices, focusing only on profit maximization, or seeking to reduce costs in auditing, do not align with the core principles of ISA 240. These alternatives would undermine the commitment to high ethical standards in auditing, which is essential for maintaining public trust and the validity of financial statements.