If, as a result of auditing procedures, an auditor believes that a client may have committed illegal acts, which of the following actions should be taken immediately by the auditor?
A) Consult with the client's legal counsel and with the auditor's legal counsel to determine how the suspected illegal acts will be communicated to the shareholders.
B) Extend normal auditing procedures to ascertain whether the suspected illegal acts may have a material effect on the financial report.
C) Inquire of the client's management and consult with the client's legal counsel and/or other specialists, as necessary, to obtain an understanding of the nature of the acts and their possible effects on the financial report.
D) Notify each member of the audit committee of the board of directors about the nature of the acts and request that they give guidance with respect to the approach to be taken by the auditor.

Question

Quizplus · Accepted Answer

In this situation, the auditor should first inquire of the client's management and obtain an understanding of the nature of the suspected illegal acts and their potential effects on the financial report. Consulting with the client's legal counsel and other specialists may also be necessary. This will help the auditor determine the appropriate course of action, which may include expanding auditing procedures to investigate further or involving outside parties, such as law enforcement or the audit committee, if necessary. However, it is important to exercise caution when communicating the suspected illegal acts to shareholders or other outside parties, as confidentiality and legal considerations must be taken into account. Therefore, the best immediate action for the auditor is to gather information and seek guidance before proceeding further.

If, as a Result of Auditing Procedures, an Auditor Believes