Final answer:
The internal auditor should recommend an investigation when they identify multiple factors indicating potential fraud. This allows for a thorough and formal inquiry by experts to confirm and address the fraudulent activities without compromising the investigation. The correct option is A.
Step-by-step explanation:
When an internal auditor identifies multiple factors that have been linked with possible fraudulent conditions and suspects that fraud has taken place, the next step would be to recommend an investigation.
This recommendation is a crucial part of the auditor's responsibility to ensure that any suspicion of fraud is thoroughly examined by those with the appropriate expertise and authority to conduct a formal investigation. It's a process that calls for discretion and adherence to the organization's established protocols for handling fraud suspicions.
It is not the auditor's role to extend tests to determine the full extent of the suspected fraud, as this could potentially compromise the subsequent investigation.
Moreover, immediate reporting to senior management or the board without a recommendation for an investigation might not ensure a comprehensive approach in dealing with the matter. Auditors must balance their duty to report with the need for due process and proper examination of the suspicions.