An Auditor Who Discovers That Client Employees Have Committed an Illegal

question 69

Multiple Choice

An auditor who discovers that client employees have committed an illegal act with material consequences on the financial statements is most likely to seek legal advice and consider withdrawing from the engagement if ________.

• A)the illegal act is a violation of generally accepted accounting principles
• B)the client does not take appropriate action after being informed about the illegal act
• C)the illegal act was committed during a prior year that was not audited
• D)the auditor has already assessed control risk at the maximum level

---

Definitions:

Management by Exception

A management strategy where leaders only intervene in the operation if performance metrics deviate from set standards, allowing employees to work autonomously until issues arise.

Transactional Leadership

A leadership style focused on the exchanges between leaders and followers, where rewards are given for accomplishments or penalties for failure.

Transactional Leadership

A leadership style focused on the exchange between leaders and followers, relying on rewards and punishments to achieve compliance.

Passive Management

A leadership or managerial style characterized by a lack of direct intervention, letting things take their own course without guiding or correcting.