Other than inquiring of management about policies they have established to prevent illegal acts and whether management knows of any laws or regulations that the company has violated, the auditor should not search for illegal acts that do not have a direct effect on the financial statements unless there is reason to believe they may exist.

Question

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The statement accurately reflects the auditor's responsibility with regard to illegal acts. The auditor should inquire of management about policies in place to prevent illegal acts and any known violations that may affect the financial statements. However, the auditor is not responsible for actively searching for illegal acts that do not have a direct impact on the financial statements unless there is reason to suspect such acts exist.

Other Than Inquiring of Management About Policies They Have Established