Several months after an unqualified audit report was issued, the auditor discovers the financial statements were materially misstated. The client's CEO agrees that there are misstatements, but refuses to correct them. The CEO claims that "confidentiality" prevents the CPA from informing anyone. Which of the following statements is correct?
A) The CEO is correct and the auditor must maintain confidentiality.
B) The CEO is incorrect, but since the audit report has been issued, it is too late to correct the report.
C) The CEO is correct, but to be ethically correct, the auditor should violate the confidentiality rule and disclose the error.
D) The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements.

Question

Quizplus · Accepted Answer

The auditor has a responsibility to issue a revised audit report if they discover that the financial statements were materially misstated, regardless of whether the client's CEO agrees to correct them or not. The confidentiality rule does not prevent the auditor from disclosing material misstatements to those charged with governance, regulators, or other third parties as required by law or regulation. Therefore, the auditor should issue a revised audit report disclosing the material misstatements and the client's refusal to correct them.

Several Months After an Unqualified Audit Report Was Issued, the Auditor