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

During the audit of Kestrel Foods, the auditor discovers payments to a government official that appear to be bribes. Management is aware of them. Under ISA 250 (Revised), what is the auditor's first required step in responding to identified or suspected non-compliance with laws and regulations?

The auditor's first step is to obtain an understanding of the non-compliance and discuss it with management and, where appropriate, those charged with governance. Only afterwards does the auditor assess the implications, including the effect on the audit and whether disclosure to an external authority is required or appropriate.

  1. AReport the matter immediately to the external regulator without discussing it with anyone at the client
  2. BDiscuss the matter with management and, where appropriate, those charged with governance, to obtain an understanding of the facts and circumstancesCorrect
  3. CResign from the engagement and withhold the audit report
  4. DIgnore the matter because bribery is outside the scope of an audit of financial statements

Explanation

ISA 250 (Revised) requires the auditor, on becoming aware of non-compliance, to obtain an understanding of the nature of the act and the circumstances, and to discuss it with management and, where appropriate, those charged with governance. Immediate external reporting skips this step; the auditor then considers the implications and whether reporting externally is required or appropriate.

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