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CS Professional · Compliance Management, Audit and Due Diligence · Audit Engagement

During the audit of Narmada Steels Ltd, the auditor has reason to believe that a senior employee has committed an offence involving fraud against the company. According to the illustrative engagement letter terms in SA 210, what is the auditor required to do?

The auditor must report to the Central Government under the prescribed rules, after forwarding the report to the Board or Audit Committee and seeking their reply or observations. Such good-faith reporting is not a breach of client confidentiality and cannot be the subject of any suit or prosecution.

  1. AReport to the Central Government in accordance with the prescribed rules, which require forwarding the report to the Board or Audit Committee seeking their reply or observations firstCorrect
  2. BReport directly to the shareholders at the Annual General Meeting without involving the Board
  3. CKeep the matter confidential because of client confidentiality requirements
  4. DReport only to the Board of Directors, as the letter makes no mention of the Central Government

Explanation

The letter states the auditor must report to the Central Government under the rules, which require forwarding the report to the Board or Audit Committee seeking their reply or observations, so that the auditor can forward the same to the Central Government. Confidentiality does not prevent this, since good-faith reporting is not a breach of confidentiality.

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