An auditor is performing an audit of a nonissuer. The auditor identifies a fraud involving senior management. The fraud is not material to the financial statements. The auditor should communicate this matter to:

Answer options:

The SEC.

Senior management only.

Those charged with governance.

The internal audit function only.

How to approach this question

Fraud Rule: Any fraud by Senior Management -> Governance. Any Material Fraud -> Governance. Immaterial fraud by low level -> Management.

Full Answer

C.Those charged with governance.✓ Correct

AU-C 240 requires the auditor to communicate to those charged with governance ANY fraud involving senior management, regardless of materiality. Also, any fraud that causes a material misstatement must be communicated.

Common mistakes

Thinking immaterial fraud by management can be ignored.

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