ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations
Brightwell LLP audits Orion Chemicals. The auditor discovers that Orion has discharged waste above permitted limits. Management says it will fix the issue and refuses to inform the environmental regulator. The effect on the financial statements is potentially material through fines. Which action is most consistent with the IESBA Code (NOCLAR) for the auditor after discussing the matter with management and those charged with governance?
The auditor should assess whether the response is adequate and then decide whether further action is needed in the public interest, which can include disclosing to an appropriate authority, after considering legal advice and confidentiality obligations. It is a judgement, not automatic resignation or inaction.
- ATake no further action since management is addressing the issue
- BDetermine whether further action is needed in the public interest, including whether to disclose the matter to an appropriate authority, having considered legal advice and confidentiality dutiesCorrect
- CAutomatically resign and tell the regulator the reason for resigning
- DDisclose the matter to Orion's competitors so the public is warned
Explanation
After discussion and assessing the response, the Code requires the auditor to determine whether further action is needed in the public interest, which may include disclosure to an appropriate authority, even overriding confidentiality where law permits or does not prohibit it. Doing nothing ignores the lack of an adequate response, and automatic resignation is not mandated. Disclosure to competitors is never appropriate.
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