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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations

During the audit of Harbor Textiles Ltd, an audit senior notices payments to a government official that may breach anti-bribery legislation. Under ISA 250 (Revised), what is the auditor's first required response on becoming aware of information about suspected non-compliance?

The auditor should first obtain an understanding of the suspected act and the circumstances in which it occurred, then discuss it with management and, where appropriate, those charged with governance. External reporting or withdrawal are later considerations, and the matter cannot be ignored simply because the amount is small.

  1. AReport the matter immediately to the regulator without informing the entity
  2. BObtain an understanding of the nature of the act and the circumstances in which it occurred, and discuss the matter with management and, where appropriate, those charged with governanceCorrect
  3. CWithdraw from the engagement at once and destroy the working papers
  4. DIgnore the matter if the amounts involved are below overall materiality

Explanation

ISA 250 (Revised) requires the auditor, on becoming aware of suspected non-compliance, to obtain an understanding of the act and circumstances and to discuss it with management and, where appropriate, those charged with governance. Immediate external reporting is not the first step. Ignoring the matter because it is below materiality is wrong since qualitative factors may make it significant.

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