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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments

Dunmore LLP is engaged by the board of Calder Holdings to investigate suspected misappropriation of inventory at one subsidiary. During the work, the engagement partner finds evidence suggesting the finance director, who commissioned the work, may be involved. What should the partner do FIRST?

The partner should take the matter to those charged with governance, such as the audit committee or board chair, rather than the implicated finance director, while considering the engagement terms, confidentiality and any legal reporting duties. Continuing to report to the suspect or destroying papers would be improper.

  1. AContinue reporting only to the finance director, since he engaged the firm
  2. BImmediately inform the police without consulting anyone
  3. CDiscuss the matter with those charged with governance, such as the audit committee or chair, and consider the engagement terms and legal and ethical reporting dutiesCorrect
  4. DWithdraw and destroy the working papers to avoid any liability

Explanation

Where management is implicated, reporting to the implicated person would compromise the investigation and objectivity. The partner should raise the matter with those charged with governance while considering confidentiality and any legal reporting obligations. Immediate disclosure to police without considering confidentiality and the terms is premature, and destroying papers is improper.

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