If specific information comes to an auditor's attention that implies the existence of possible illegal acts that could have a material, but indirect effect on the financial statements, the auditor should next:

Question

Quizplus · Accepted Answer

Choice "A" is correct. If specific information comes to an auditor's attention that implies the existence of possible illegal acts that could have a material, but indirect effect on the financial statements, the auditor should next apply audit procedures specifically directed to ascertaining whether an illegal act has occurred. The auditor should obtain an understanding of the situation, inquire of management (at a level above those involved), consult legal counsel, and consider applying additional audit procedures if necessary. Choice "B" is incorrect. The auditor would consult with the client's legal counsel after obtaining an understanding of the situation and inquiring of management. Choice "C" is incorrect. The auditor would inquire of management at a level above those involved after obtaining an understanding of the situation. Choice "D" is incorrect. The auditor would only communicate with those charged with governance regarding detected illegal acts, not possible illegal acts.

If Specific Information Comes to an Auditor's Attention That Implies