Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 11

Section 401 of the Sarbanes-Oxley Act requires that each financial statement to be filed with the SEC should reflect all material correcting adjustments that have been identified by the audit firm in accordance with GAAP and the rules and regulations of the Commission.  How does this requirement relate to the auditors’ legal liability for reporting illegal acts? What are the procedures to be followed by an auditor upon discovering that the client has committed an illegal act?