An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if:

Question

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Choice "B" is correct. The auditor may conclude that withdrawal is necessary if the client does not take the remedial action that the auditor considers necessary in the circumstances, even when the illegal act is not material to the financial statements. Choice "A" is incorrect. Whether or not the illegal act is a violation of GAAP does not determine the need to withdraw from the engagement. Choice "C" is incorrect. An illegal act committed in the prior year would not necessarily cause an auditor to withdraw from a current engagement. Choice "D" is incorrect. Assessment of control risk at a high level would cause an auditor to modify the nature, timing, or extent of audit procedures, but would not cause withdrawal from an engagement.

An Auditor Who Discovers That Client Employees Have Committed an Illegal