Question

Under Sarbanes-Oxley, list the three circumstances when an auditor would bypass senior management and report directly to the audit committee of the client's board of directors.?

Answer 1

Under Sarbanes-Oxley, auditors must report directly to the audit committee when they find significant accounting fraud, have a serious disagreement with management over financial statement presentation, or identify considerable deficiencies in internal controls that are not being addressed by management.

Step-by-step explanation:

Under the Sarbanes-Oxley Act of 2002, there are certain circumstances where an auditor must bypass senior management and report directly to the audit committee of the client's board of directors. These circumstances generally arise when an auditor discovers evidence that management may be involved in material misleading or fraudulent reporting. It is a legal requirement for auditors to follow this protocol to enhance corporate governance and protect investors. The circumstances include:

• Evidence of major accounting fraud or irregularities conducted by company executives.
• Dispute between the auditor and management on the financial statement presentation that could significantly affect the financials.
• Identification of significant weaknesses or deficiencies in the internal controls over financial reporting which management is not appropriately addressing.

These situations reflect the broader objective of the Sarbanes-Oxley Act to increase investor confidence in the financial information provided by public corporations following major scandals such as Enron, WorldCom, and Tyco.