When the Auditor Knows That an Illegal Act Has Occurred

question 44

Multiple Choice

When the auditor knows that an illegal act has occurred, the first course of action by the auditor is to:

• A) withdraw from the engagement.
• B) issue an adverse opinion.
• C) consider the effects on the financial statements, including the adequacy of disclosure.
• D) not report it to the proper governmental authorities.

Recognize the importance of addressing communication issues promptly and effectively.

Understand the basic concepts of probability, including independent and dependent events.

Calculate probabilities for single events.

Evaluate the probabilities of compound events using appropriate formulas.

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Definitions:

Public Company Accounting Oversight Board

A regulatory agency that is charged with the task of making certain that correct, unbiased, and comprehensive data finds their way to potential investors, so that they can make informed decisions about investment opportunities.

Certified Financial Advisor

A professional who has obtained certification and is qualified to provide financial planning and advice to clients.

Fiduciary Duty

A legal obligation of one party to act solely in the interest of another party. For example, corporate directors have a fiduciary duty to act in the best interests of their shareholders.

Malpractice

The failure of a professional to provide services with the skill and care that is ordinarily provided by competent professionals, leading to harm or loss.