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

Zephyr & Co, an audit firm, is auditing Calder Plc. During the audit the engagement partner discovers that a senior manager at Calder appears to have paid a bribe to secure a government contract. Under the IESBA Code's approach to non-compliance with laws and regulations (NOCLAR), what should the auditor do first on becoming aware of the suspected non-compliance?

The auditor should first obtain an understanding of the suspected bribery and discuss it with the appropriate level of management and, where appropriate, those charged with governance. Direct reporting to authorities, resignation or ignoring the matter are later or inappropriate steps under the IESBA Code's NOCLAR framework.

  1. AReport the matter immediately to the relevant authority without discussing it with anyone at the client
  2. BObtain an understanding of the matter and discuss it with the appropriate level of management and, where appropriate, those charged with governanceCorrect
  3. CResign from the engagement immediately to avoid association with the client
  4. DIgnore the matter because bribery is outside the scope of a financial statement audit

Explanation

The Code requires the auditor first to obtain an understanding of the suspected non-compliance and to discuss it with management and, where appropriate, those charged with governance, so that they can rectify, remediate or mitigate it or disclose it to authorities. Immediate external reporting skips this step. Resignation is not the first response and ignoring the matter is not permitted.

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