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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Code of Ethics for Professional Accountants

Marlow LLP audits Thistle Ltd. The audit team finds that Thistle's finance director has been deliberately understating taxable profit. Marlow raised the matter with the board, which refused to take any action. Marlow concludes the non-compliance is intentional and has a material effect on the financial statements. Which action is MOST consistent with the IESBA Code?

The auditor should consider what further action is needed in the public interest, including disclosing to an appropriate authority, taking legal advice into account. The Code says such disclosure does not breach confidentiality. Simply stopping after informing the board, or going to the press, would not follow the NOCLAR framework.

  1. ADetermine whether further action is needed in the public interest, including whether disclosure to an appropriate authority is warranted, after considering legal advice and confidentiality obligationsCorrect
  2. BTake no further action because the board has been informed and the duty of confidentiality is absolute
  3. CPublish the matter to the press to protect the public interest
  4. DDisclose the matter to the shareholders' representative at their next social meeting and continue as normal

Explanation

Where management and those charged with governance do not provide an appropriate response, the auditor must assess whether further action is needed, which may include disclosure to an appropriate authority. The Code states that such disclosure is not a breach of the duty of confidentiality. Legal advice is considered. Absolute confidentiality is wrong because the Code permits disclosure in these circumstances, and going to the press is not an appropriate authority.

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