The auditor's responsibility with regard to illegal acts is greatest when:
A) The illegal acts have an indirect and material effect on financial statement amounts
B) The illegal acts have a direct and material effect on financial statement amounts
C) The illegal acts have a direct and immaterial effect on financial statement amounts
D) Illegal acts exist regardless of the effects on the financial statements

Question

Quizplus · Accepted Answer

The auditor's responsibility with regard to illegal acts is greatest when the illegal acts have a direct and material effect on financial statement amounts. In such cases, the auditor needs to obtain sufficient evidence to evaluate the financial statement effect of the illegal act, communicate the findings to management and those charged with governance, and consider the effect on the auditor's report. If the illegal act is pervasive, the auditor may need to issue a disclaimer of opinion or withdraw from the engagement. In cases where the illegal act has only an indirect and material effect or a direct but immaterial effect, the auditor's responsibility is not as great as the effect on the financial statements is not significant. If illegal acts exist regardless of the effects on the financial statements, the auditor still has a responsibility to communicate them to management and those charged with governance, but the impact on the auditor's report may be limited.

The Auditor's Responsibility with Regard to Illegal Acts Is Greatest