Question

Other than inquiring of management about policies they have established to prevent illegal acts and

whether management knows of any laws or regulations that the company has violated, the auditor
should not search for indirect-effect illegal acts unless there is reason to believe they may exist.
A) True
B) False

Answer 1

The statement is false; auditors should consider evidence that may indicate the presence of indirect-effect illegal acts and may need to investigate further.

Step-by-step explanation:

The statement that an auditor should not search for indirect-effect illegal acts unless there is reason to believe they may exist is False. Auditors have a responsibility to exercise professional skepticism and to consider the risk of material misstatement in the financial statements due to fraud, which may include illegal acts.

While the primary responsibility rests with management to establish policies to prevent illegal acts and to be aware of any violations, auditors should also consider any evidence that comes to their attention during the audit that may indicate an indirect-effect illegal act has occurred, and this may require expanded procedures to investigate the potential illegal act.