An audit generally provides no assurance that indirect-effect illegal acts will be detected.

Question

Quizplus · Accepted Answer

An indirect-effect illegal act refers to an illegal act that affects financial statements indirectly, such as bribery or kickbacks to a vendor that increases the cost of goods sold. Auditors only provide reasonable assurance that the financial statements are free from material misstatements, including fraud or illegal acts committed by management or employees. However, detecting indirect-effect illegal acts is difficult because they typically do not leave a direct trail of evidence in the financial statements, making it almost impossible for auditors to uncover them during the audit process. Therefore, an audit generally does not provide assurance that indirect-effect illegal acts will be detected.

An Audit Generally Provides No Assurance That Indirect-Effect Illegal Acts