Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports

Near the end of the audit of Orrin Co, the auditor finds that the finance director appears to have overridden controls to misstate revenue. The audit committee comprises independent non-executive directors, but the chair is a close friend of the finance director. The auditor is concerned the matter may not be handled objectively. Which course of action is most appropriate?

The auditor should communicate the suspected management fraud to those charged with governance and, if concerned about the communication's effectiveness, consider other governance levels, take legal advice and evaluate any duty to report externally. Informing only the implicated director, delaying until certainty, or silent resignation are inappropriate.

  1. ACommunicate only to the finance director, since the matter concerns his department
  2. BNot communicate until the auditor has concluded fraud has definitely occurred and been quantified
  3. CCommunicate the matter to TCWG, and if concerned about the effectiveness of the communication, consider communicating with other members such as a higher level of governance, seeking legal advice, and any duty to report externallyCorrect
  4. DResign immediately without communicating with anyone

Explanation

ISA 240 requires the auditor to communicate fraud involving management to TCWG on a timely basis. If doubts exist about the response, the auditor considers other routes, legal advice and any legal or ethical duty to report to external authorities. Telling only the implicated individual is inappropriate, waiting for certainty is not required, and resigning silently could breach ethical duties.

Did you get it right without looking?

One question tells you little. A timed set on Auditor's reports shows your real accuracy, how long you take and where you lose marks.

Practise Auditor's reportsFree diagnostic mock

More Auditor's reports questions