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

While auditing Tessen Retail, the audit senior discovers that a purchasing manager has been paying small bribes to a supplier in breach of anti-corruption law. The amounts are clearly trivial and the senior is satisfied they are isolated and do not affect the financial statements materially. What should the auditor do first under ISA 250 (Revised)?

The auditor should first discuss the suspected non-compliance with management and, where appropriate, those charged with governance, then evaluate its implications for the audit and risk assessment. Immediate resignation or external reporting is premature, and ignoring it would be wrong unless it is clearly inconsequential.

  1. ADo nothing, since the amounts are inconsequential
  2. BImmediately resign from the engagement
  3. CDiscuss the matter with management and, where appropriate, those charged with governance, and evaluate the implications for the audit, including the risk assessmentCorrect
  4. DReport the matter directly to the law enforcement authorities without informing the client

Explanation

On identifying or suspecting non-compliance, the auditor obtains an understanding of the nature of the act and discusses it with management and, where appropriate, those charged with governance, then evaluates the effect on the audit and risk assessment. Even trivial matters are communicated unless clearly inconsequential, so the first step is discussion, not resignation or direct reporting.

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