Audit and Assurance Practice Exam

What is one action an auditor can take if they identify fraudulent activity after the audit?

1. Ignore it and move on.

2. Disclose the findings to management.

3. File a complaint with law enforcement.

4. Reissue the audit report with additional information.

The correct answer is: Disclose the findings to management.

When an auditor identifies fraudulent activity after completing an audit, a crucial action is to disclose the findings to management. This step is vital because the management is responsible for the organization’s financial integrity and internal controls. Once the management is made aware of the fraudulent activity, they can take appropriate steps to investigate the issue further, implement corrective measures, and prevent future occurrences. Disclosing to management aligns with the auditor's ethical responsibilities and professional standards, which emphasize the need to communicate significant issues that could affect the financial statements. This action serves the purpose of ensuring transparency and holding the organization accountable for its financial practices while also safeguarding stakeholders' interests. In contrast, ignoring the issue would be unethical and could exacerbate the problem. Filing a complaint with law enforcement can be a necessary step, primarily if there are significant legal implications; however, the immediate priority involves management's awareness. Reissuing the audit report might not be appropriate, as the original conclusions were based on the information available at the time, and the audit report’s integrity should maintain its validity without modifications post-audit unless specific conditions warrant it.