Question

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.

Answer 1

When an auditor knows that an illegal act has occurred, they have a responsibility to report it to the proper authorities, consider the impact on financial statements, and may need to withdraw from the engagement.

Step-by-step explanation:

When an auditor knows that an illegal act has occurred, they have certain responsibilities. When an auditor knows that an illegal act has occurred, they have a responsibility to report it to the proper authorities, consider the impact on financial statements, and may need to withdraw from the engagement.

First, they must report it to the proper governmental authorities to ensure that appropriate action is taken. They should also consider the effects on the financial statements and assess the adequacy of disclosure to accurately reflect the impact of the illegal act. Additionally, they may need to withdraw from the engagement if they determine that their independence and objectivity are compromised.