When the Auditor Believes an Illegal Act May Have Occurred

question 72

Multiple Choice

When the auditor believes an illegal act may have occurred, it is necessary to:

• A) consider accumulating additional evidence to determine if there is actually an illegal act.
• B) inquire of management, at a level above those likely to be involved with illegality.
• C) consult with the client's legal counsel.
• D) do all three of the above.

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Definitions:

Goodwill

An intangible asset reflecting the excess value of a business above its net tangible assets, often arising from acquisitions.

Consolidated Balance Sheet

A financial statement showing the combined assets, liabilities, and equity of a parent company and its subsidiaries.

Acquisition Method

An accounting technique used to consolidate the financial statements of a parent company and its subsidiaries.

Monetary Assets

Assets that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.