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

During the audit of Karimov Mining Co, the auditor reads board minutes and notes a discussion of an unresolved investigation by an environmental regulator into possible illegal discharge of waste. Management has not mentioned it. What should the auditor do first under ISA 250 (Revised)?

The auditor should first obtain an understanding of the suspected non-compliance and discuss it with management and, where appropriate, those charged with governance, gathering further information to evaluate the effect on the financial statements. Considering external reporting or resignation comes only after this, and materiality should not be judged on the fine alone.

  1. AImmediately resign from the engagement as management has concealed information
  2. BReport the matter to the regulator without informing management
  3. CDisregard it unless the potential fine exceeds overall materiality
  4. DDiscuss the matter with management and those charged with governance, and obtain further information to evaluate the possible effect on the financial statementsCorrect

Explanation

When the auditor becomes aware of information about possible non-compliance, ISA 250 (Revised) requires them to obtain an understanding of the nature of the act and the circumstances, and discuss with management and, where appropriate, those charged with governance. Evaluating the effect includes consequences beyond the fine, such as going concern or loss of licence. Reporting externally or resigning are later considerations, not first steps, and ignoring by reference to the fine alone is wrong.

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