ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations
Talbot Logistics is audited by Marwick & Co. The audit partner suspects the client's managing director has committed a serious breach of law that is material to the financial statements. The managing director has refused to remedy it and the board takes no action. The auditor has concluded that the non-compliance is pervasive and that management integrity is in doubt. Which combination of actions is MOST appropriate?
The auditor should consider the effect on the opinion and on management representations, seek legal advice on reporting and withdrawal, and decide whether disclosure to an authority is required or permitted by law. Staying silent with an unmodified opinion or going to the press are both inappropriate.
- AContinue the audit, issue an unmodified opinion and mention the matter in the management letter only
- BConsider the implications for the audit opinion and the reliability of management representations, seek legal advice on reporting duties and possible withdrawal, and consider whether disclosure to an authority is legally required or permittedCorrect
- CImmediately disclose to the press to protect the public interest
- DDisclose to the authority only after the audit is completed and the opinion is signed, regardless of legal advice
Explanation
ISA 250 (Revised) requires the auditor to consider the effect on the opinion, the reliability of representations and the possibility of withdrawal, with legal advice on responsibilities. The Code also directs consideration of whether disclosure to an appropriate authority is required or permitted. An unmodified opinion with only a management letter ignores material, pervasive effects. Press disclosure breaches confidentiality, and ignoring legal advice is inappropriate.
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