How should an auditor handle illegal acts by auditees?
What will be an ideal response?
CAS 250 acknowledges that illegal acts may be difficult to detect because of (1) efforts made to conceal them and (2) questions about whether an act is illegal, which are complex and may only be resolved by a court of law.
The auditors' knowledge of the business and inquiries of management help to identify laws and regulations that if violated and not reported, could result in material misstatements. In addition, auditors should inquire and obtain representations about awareness and disclosure of possibly illegal acts. Material, possibly illegal, acts should be communicated to those charged with governance (audit committee) and
appropriate levels of management. An example is the violation of tax laws.
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