When the auditors become aware of noncompliance with a law or regulation committed by client personnel,the primary reason that the auditors should obtain a better understanding of the nature of the act is to
A) Recommend remedial actions to the audit committee.
B) Evaluate the effect of the noncompliance on the financial statements.
C) Determine whether to contact law enforcement officials.
D) Determine whether other similar acts could have occurred.

Question

Quizplus · Accepted Answer

The auditors should obtain a better understanding of the nature of the act to evaluate the effect of the noncompliance on the financial statements. This will help them to determine whether the financial statements require adjustments or disclosures, and whether the identified noncompliance is material or immaterial to the financial statements. The other options (A, C, and D) may be relevant in some cases, but they are not the primary reason for understanding the nature of the noncompliance.

When the Auditors Become Aware of Noncompliance with a Law