When the auditor knows that an illegal act has occurred, the first course of action by the auditor is to:
A) consider the effects on the financial statements, including the adequacy of disclosure.
B) not report it to the proper governmental authorities.
C) withdraw from the engagement.
D) issue an adverse opinion.

Question

Quizplus · Accepted Answer

The auditor's first course of action when they know that an illegal act has occurred is to consider its effects on the financial statements, including the adequacy of disclosure. The auditor is required to report the illegal act to the appropriate level of management, but not reporting it to the proper governmental authorities is not an option. Withdrawing from the engagement or issuing an adverse opinion may be necessary, depending on the severity of the illegal act and its impact on the financial statements. However, these actions should not be taken until the auditor has completed their investigation and assessment of the situation.

When the Auditor Knows That an Illegal Act Has Occurred