When an Auditor Believes That an Illegal Act May Have

question 159

Multiple Choice

When an auditor believes that an illegal act may have occurred, the auditor should first

• A) obtain an understanding of the nature and circumstances of the act.
• B) consult with legal counsel or others knowledgeable about the illegal act.
• C) discuss the matter with the audit committee.
• D) withdraw from the engagement.

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Definitions:

Variable Costs

Expenditures that adjust in alignment with production levels or sales quantities, notably including labor and raw materials.

Fixed Costs

Costs that do not vary with the level of production or sales activities, such as rent, salaries, and insurance premiums.

Mixed Costs

Expenses that have both fixed and variable components, changing in total with the level of activity but not proportionally.

Fixed Costs

Fixed costs, including items like rent, salaries, and insurance, do not vary based on the amount of goods produced or sold.