AAA – L3 – SA – Q3.3 – Suspected Fraud

First step when suspecting fraud by senior management.

Question

When an auditor suspects that fraud has occurred in a corporate client’s business, and that senior management are involved in the fraud, the auditor should as a first step:

A discuss the matter with the audit committee

B seek legal advice

C ask a professional accountancy body for advice

D report the matter to the police authorities.

Answer

Explanation:
Suspected fraud in a client company is not sufficient grounds for the auditor to breach its duty of confidentiality. The auditor should seek legal advice before doing anything else to ensure compliance with legal and ethical obligations. Discussing with the audit committee (A), seeking advice from a professional body (C), or reporting to the police (D) may follow, but legal advice is the first step. Thus, B is the correct answer.

Tags: Auditor Responsibility, Confidentiality, Fraud, ICAG
Level: Level 3

Topic: Professional responsibility and liability

Uploader: Salamat Hamid