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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Zeta & Co, an audit firm applying the IESBA Code, discovers while auditing Orion Ltd that the finance director has deliberately under-declared sales tax, which is a material breach of law. The firm has raised it with management and those charged with governance, but nothing has been done. Under the NOCLAR framework in the Code, what should the auditor do next?

The auditor should consider whether further action is needed in the public interest, which may include disclosing the matter to an appropriate authority. The Code allows this even though it overrides confidentiality, subject to legal constraints. Resigning silently or going to the press would not be the prescribed response.

  1. ADetermine whether further action is needed in the public interest, which may include disclosure to an appropriate authority, taking account of legal and confidentiality constraintsCorrect
  2. BResign immediately and take no further steps, because confidentiality always prevents any disclosure
  3. CReport the matter to the press so that the public is alerted
  4. DIgnore the matter because tax law is outside the scope of an audit of financial statements

Explanation

Under the NOCLAR provisions, once the auditor has communicated the matter to management and those charged with governance and has received no appropriate response, the auditor must consider whether further action is needed in the public interest. This can include disclosure to an appropriate authority, which the Code permits as an override of confidentiality. Resigning alone does not discharge the responsibilities, and disclosure to the press is not an appropriate authority.

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