Question

After noting some red flags, an internal auditor has an increased awareness that fraud may be present. Which of the following best describes the internal auditor's responsibility?

1) Expand activities to determine whether an investigation is warranted.
2) Report the possibility of fraud to senior management and the board and ask them how they would like to proceed.
3) Consult with external legal counsel to determine the course of action to be taken, including the approval of the proposed engagement work program to make sure it is acceptable on legal grounds.
4) Report the matter to the audit committee and request funding for outside service providers to help investigate the possible fraud.

Answer 1

The internal auditor's responsibility is to report the matter to the audit committee and request funding for outside service providers to help investigate the possible fraud.

Step-by-step explanation:

The internal auditor's responsibility, after noting red flags that suggest fraud may be present, is to report the matter to the audit committee and request funding for outside service providers to help investigate the possible fraud. This action is necessary because internal auditors do not have the authority to carry out investigations on their own. By reporting to the audit committee, they can ensure that the matter is escalated to the appropriate level and sufficient resources are allocated for the investigation.