An Independent CPA Is Conducting an Audit of an Entity

question 54

Multiple Choice

An independent CPA is conducting an audit of an entity that is subject to the GAO audit standards, but is not subject to the OMB audit standards. While conducting the audit, the CPA found that the entity had violated a law that had a large, but not material, potential penalty associated with such violation. There was no accrual for the potential penalty or disclosure of the violation. What action(s) must the CPA take with regard to this violation?

• A) Nothing, since the financial statements are not materially misstated.
• B) Must issue an adverse opinion if the financial statements are not changed to reflect the violation.
• C) Must issue a report that details the violation and the potential dollar effect.
• D) Must report the incident to the local law enforcement agency.

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Definitions:

Peanuts

A type of legume or nut, often consumed as a snack, used in cuisines worldwide, and known for its protein content.

Cashews

A type of nut that is crescent-shaped and commonly consumed as a snack or used in various recipes.

Determinant

A scalar value that can be computed from the elements of a square matrix and encodes certain properties of the matrix.

Minors

The determinants of the smaller square matrices obtained by removing one row and one column from a square matrix, used in calculating the determinant of the matrix.