When the auditor knows that an illegal act has occurred, the auditor must:
A) report it to the proper governmental authorities.
B) consider the effects on the financial statements, including the adequacy of disclosure.
C) withdraw from the engagement.
D) issue an adverse opinion.

Question

Quizplus · Accepted Answer

When the auditor knows that an illegal act has occurred, the auditor must first consider the effects on the financial statements, including the adequacy of disclosure. The auditor is then required to discuss the matter with management, determine whether management has taken appropriate remedial action, and evaluate the effect of the illegal act on the financial statements. The auditor should report the illegal act to the audit committee or to senior management if it is not properly addressed. Reporting the illegal act to the proper governmental authorities is not required unless the auditor has a legal or regulatory obligation to do so. Withdrawing from the engagement or issuing an adverse opinion would not be appropriate unless management does not take appropriate remedial action.

When the Auditor Knows That an Illegal Act Has Occurred