An independent CPA is conducting an audit of an entity that is subject to the GAO audit standards, but is not subject to the OMB audit standards. While conducting the audit, the CPA found that the entity had violated a law that had a large, but not material, potential penalty associated with such violation. There was no accrual for the potential penalty or disclosure of the violation. What action(s) must the CPA take with regard to this violation?

Question

Quizplus · Accepted Answer

When auditing an entity subject to the Government Accountability Office (GAO) audit standards, auditors are required to report noncompliance with laws and regulations that could have a direct and material effect on the financial statements. Even if the potential penalty is not material to the financial statements, the GAO standards emphasize the importance of transparency and accountability in public sector audits, necessitating the reporting of such violations.

An Independent CPA Is Conducting an Audit of an Entity