• 1 Marks

AAA – Nov 2012 – L3 – SA – Q17 – Forensic Auditing

Identifying inappropriate actions for material fraud detected in a banking audit.

Which of the following actions is inappropriate to a material fraud detected during an audit of a banking institution?

A. Discuss the matter with at least one level of management above the perpetrators
B. Obtain further evidence
C. Mention it in the audit report
D. Suggest that the client consults with legal counsel about questions of law
E. Report the matter directly to the police

E. Report the matter directly to the police

Explanation:
The correct answer is “E” because auditors typically should not report directly to the police. Instead, they should follow internal reporting channels, such as informing higher management or the audit committee, and suggest legal consultation if necessary. Direct reporting to law enforcement is usually the responsibility of the client unless required by specific regulations.

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