Question

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

a. Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters.
b. Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters.
c. Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company.
d. Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters.

Answer 1

An auditor must communicate both significant audit adjustments and management consultations with other accountants to the company's board of directors for proper corporate governance.

Step-by-step explanation:

An auditor should communicate both significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters to those charged with governance in a publicly traded company. This ensures that the board of directors, being the first line of corporate governance, has full oversight of the company's financial reporting and auditing processes. When such information is not properly communicated, it can lead to situations where inaccurate financial information is presented to investors, as was the case with Lehman Brothers' failure in corporate governance.