ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error
An audit firm discovers a suspected fraud at a client, Delta Co. Local law does not require reporting to an authority, but the client's articles say nothing on this. The auditor is bound by confidentiality. Under the IESBA Code and ISA 240, what is the correct approach to external reporting?
The auditor should weigh legal and ethical responsibilities, usually taking legal advice, and disclose externally only where law requires or permits it or the Code's public interest conditions are met. Automatic reporting or absolute silence is wrong, because confidentiality can be overridden only in defined circumstances.
- AConsider the legal and ethical responsibilities, take legal advice if needed, and disclose externally only if law requires or permits and professional duty allowsCorrect
- BAlways disclose to the police immediately because fraud overrides confidentiality
- CNever disclose externally under any circumstance
- DDisclose to the client's competitors to protect the public
Explanation
ISA 240 notes that the auditor's confidentiality duty may be overridden by law, and the Code allows disclosure where permitted by law or in the public interest after considering factors. The auditor should determine responsibilities, often with legal advice. Automatic disclosure ignores the judgement needed, and absolute silence ignores legal overrides.
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