Question

Auditing standards require the auditor to communicate all management frauds and illegal acts to the audit committee

A) only if the act is immaterial.
B) only if the act is material.
C) only if the act is highly material.
D) regardless of materiality.

Answer 1

Auditors are required to communicate any management frauds and illegal acts to the audit committee regardless of their materiality, given their implications on corporate governance and internal controls.

Step-by-step explanation:

Auditing standards require the auditor to communicate all management frauds and illegal acts to the audit committee D) regardless of materiality. This requirement is based on the principle that while materiality is relevant for financial statement presentation, any fraud or illegal act committed by management has a qualitative significance that warrants communication to those charged with governance - typically, the audit committee.

Auditors must report such findings irrespective of whether they seem big or small, as the act itself may indicate a more pervasive problem with corporate governance or internal controls within the entity.