During the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing auditor, determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts involved were immaterial to the financial statements. Jones should reconsider the intended degree of reliance to be placed on the:

Question

Quizplus · Accepted Answer

Choice "C" is correct. The auditor should consider the implications of an illegal act in relation to other aspects of the audit, particularly the reliability of representations of management. Choice "A" is incorrect. The integrity of the client's attorney would not necessarily be affected by illegal acts performed by the client. Choice "B" is incorrect. The prior year audit plan would not be affected by the discovery of illegal acts in past years. Choice "D" is incorrect. The auditor should consider the quantitative and qualitative materiality of the illegal act. However, this does not change the preliminary judgment about materiality levels.

During the Annual Audit of Ajax Corp