ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error
Auditor Kiran is auditing Orion Ltd and finds that the chief executive probably inflated revenue through false invoices. Kiran must decide who to inform. Which action is most consistent with ISA 240?
Where the suspected fraud involves the chief executive, the auditor should communicate with those charged with governance on a timely basis, not just the implicated manager. Reporting only to the chief executive, delaying until year end, or withdrawing without communicating would breach ISA 240 communication requirements.
- ACommunicate to those charged with governance, unless all of them are involved in managing the entity, and consider whether to discuss with management firstCorrect
- BReport only to the chief executive and wait for a response
- CInclude the matter only in the management letter at year end
- DWithdraw from the engagement without any communication
Explanation
When fraud involves management, ISA 240 requires communication with those charged with governance on a timely basis. Telling only the suspected chief executive undermines independence of the response. Waiting for a year-end letter is not timely, and withdrawing silently ignores the communication duty and the Code requirements.
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