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

Halden Retail Group's auditor suspects management has been bribing officials to win contracts. The amounts appear immaterial, but the suspected involvement is by the finance director. Which approach is most consistent with ISA 250 (Revised)?

The auditor should assess the implications even though the amounts are small, because suspected involvement of senior management casts doubt on their integrity and the reliability of representations. The auditor should then communicate with those charged with governance and consider reporting duties, rather than relying on quantitative materiality alone.

  1. ATreat the matter as immaterial and take no further action, since the amounts are below materiality
  2. BAssess the implications even though the amounts are small, because management involvement may call into question the reliability of representations, and consider the need to reportCorrect
  3. CInform the bribed officials' employer before communicating with the entity
  4. DWithdraw from the audit immediately without communicating with anyone

Explanation

ISA 250 (Revised) states that quantitative materiality is not the only test. Suspected non-compliance involving management raises doubts about the integrity of management and the reliability of their representations, so the auditor must evaluate the implications for the audit and consider communication with those charged with governance and any reporting responsibilities. Ignoring the matter because the amounts are small is wrong, and informing outside parties first would breach confidentiality unless a legal or ethical duty applies.

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