ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error
Kestrel & Partners audits Alba Co. The audit manager finds evidence that the chief executive, who holds 60% of the shares, has been diverting funds to a private account. The auditor wishes to report this to an external authority, though no law in the jurisdiction requires it. Under ISA 240 and the IESBA Code, what is the most appropriate first consideration?
The auditor should first take legal advice and consider whether law or regulation permits or requires disclosure to an external authority. Confidentiality is a core ethical duty, so it is overridden only where the law allows or requires it, not simply because the auditor judges it to be in the public interest.
- AReport immediately, since the public interest always overrides confidentiality
- BConsider legal advice and whether law or regulation permits or requires disclosure, as the duty of confidentiality may otherwise prevent itCorrect
- CResign without giving any reason, to avoid breaching confidentiality
- DReport the matter only to the chief executive, as the majority owner
Explanation
ISA 240 recognises that the duty of confidentiality may preclude reporting to external parties, but that the auditor may have a legal responsibility or right to do so. The auditor should therefore consider legal advice and the legal position before disclosing. Disclosure is not automatic, and reporting only to the implicated chief executive would be inappropriate.
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