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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations

While auditing Lumen Retail, the auditor suspects the finance director is involved in a tax evasion scheme. What should the auditor do in deciding whom to approach about the matter under ISA 250 (Revised)?

Where the suspected involvement is by management such as the finance director, the auditor should communicate with those charged with governance or a higher authority instead of relying on the implicated person. Telling only the finance director, delaying, or contacting third parties would be inappropriate.

  1. ADiscuss it with the finance director only, as the person with the best knowledge
  2. BConsider whether management involved is implicated, and if so, communicate with the level above, such as those charged with governance, rather than relying on the implicated personCorrect
  3. CWait until the audit report is signed and then raise it
  4. DDiscuss it with the company's bankers first

Explanation

If management, including the finance director, is suspected of involvement, the auditor must communicate with those charged with governance or the next level of authority, since the implicated person cannot be relied on. Discussing only with the finance director undermines objectivity, delaying until after sign-off is inappropriate, and informing bankers would breach confidentiality.

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