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ACCA Strategic Professional · Advanced Audit and Assurance (International) · International regulatory frameworks for audit and assurance services

Harlow Partners audits Vantage Retail. During the audit, the engagement partner suspects that Vantage's sales director has funnelled the proceeds of a criminal enterprise through the company's accounts. The partner is also aware that raising the issue with the client's management could alert the individual. Which course of action is most consistent with international anti-money laundering principles applicable to auditors?

The partner should report the suspicion internally to the firm's money laundering reporting officer, who decides whether to report externally to the authorities, and must avoid any communication that could amount to tipping off. Discussing the suspicion with the director or mentioning it in a management letter risks prejudicing an investigation.

  1. ADiscuss the suspicion openly with the sales director to give an opportunity to explain, then decide whether to report
  2. BMake an internal report to the firm's money laundering reporting officer (or equivalent), who decides on external reporting, and avoid any communication that could amount to tipping offCorrect
  3. CCarry on with the audit and mention the matter only in the management letter at year end
  4. DResign immediately and inform other audit clients of the suspicion to protect them

Explanation

Firms normally require suspicions to be reported internally to the money laundering reporting officer, who assesses whether an external report to the relevant authority is required. Tipping off, meaning alerting the suspect in a way that could prejudice an investigation, is an offence in many jurisdictions. Discussing with the director risks tipping off, and a management letter comment would also disclose it. Telling other clients breaches confidentiality.

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