Final answer:
When an entity's management fails to provide adequate information on potential illegal acts, the auditor should consult with the entity's legal counsel or other expert advisers to assess the implications on the financial statements.
Step-by-step explanation:
If the entity's management does not provide satisfactory information about possible illegal acts, the auditor should consult with the entity's legal counsel or other expert advisers. This step is important because it helps the auditor in understanding the legal implications of the acts and in determining how they may affect the financial statements.
If, after communicating with the legal counsel, the auditor concludes that there is a material effect on the financial statements and the entity refuses to disclose this in the notes to the financial statements, the auditor may decide to modify their audit opinion or to withdraw from the engagement, where withdrawal is legally permitted.