When an auditor knows that an illegal act has occurred, he or she must
A) report it to the proper governmental authorities.
B) consider the effects on the financial statements, including the adequacy of disclosure.
C) withdraw from the engagement.
D) issue an adverse opinion.

Question

Quizplus · Accepted Answer

The auditor must consider the effects of the illegal act on the financial statements, including whether the act has been adequately disclosed, to ensure the financial statements provide a true and fair view. Reporting to authorities or withdrawing from the engagement are actions that might be considered based on the severity of the act and the client's response, but they are not the immediate required steps. Issuing an adverse opinion is contingent upon the impact of the illegal act on the financial statements and whether it leads to a conclusion that the financial statements are materially misstated.

When an Auditor Knows That an Illegal Act Has Occurred