When the Auditor Knows That an Illegal Act Has Occurred

question 112

Multiple Choice

When the auditor knows that an illegal act has occurred, the auditor must:

• A) report it to the proper governmental authorities.
• B) consider the effects on the financial statements, including the adequacy of disclosure.
• C) withdraw from the engagement.
• D) issue an adverse opinion.

---

Definitions:

Discount Rates

The rate of interest applied to calculate the current value of future cash flows.

Market Proxy

A singular asset or portfolio that represents the characteristics of an entire market segment or the market as a whole.

CAPM

The Capital Asset Pricing Model, which describes the relationship between systematic risk and expected return for assets, particularly stocks, suggesting that investors need to be compensated in two ways: time value of money and risk.

Fama and French

Scholars who developed a three-factor model for explaining the risk and return of stocks and other investments.