An auditor who discovers that a client's employees have paid small bribes to public officials most likely would withdraw from the engagement if the:

Question

Quizplus · Accepted Answer

Choice "C" is correct. When an auditor cannot rely on management's representations, he or she should withdraw from the engagement. Choice "A" is incorrect. As long as the client takes appropriate remedial action, the auditor would not need to withdraw from the engagement simply because the client receives federal financial assistance. However, the auditor would be subject to a variety of reporting requirements related to this discovery. Choice "B" is incorrect. If there is no evidence that an illegal act was committed, management may be unable to take remedial action against the related employees. As long as the illegal act is immaterial and the auditor is satisfied that management's response is appropriate in the circumstances, there would be no reason for the auditor to withdraw. Choice "D" is incorrect. The auditor should evaluate the adequacy of disclosure in the financial statements with respect to the potential effects of an illegal act. If the auditor concludes that disclosure is inadequate, he or she should express a qualified or adverse opinion, but would not necessarily need to withdraw from the engagement (unless the client refused to accept the modified report).

An Auditor Who Discovers That a Client's Employees Have Paid