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

Those charged with governance.

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.

Question 70 All questions Question 72

Practice the full CPA AUD Practice Exam 5

78 questions · hints · full answers · grading

More questions from this exam

Q01A CPA firm is auditing the financial statements of a nonissuer, TechInnovate Inc. The lead engage...Hard Q02During the audit of an issuer, Gamma Corp, the audit firm proposes to provide tax services to the...Hard Q03An auditor is performing a Yellow Book audit (GAO Government Auditing Standards) for a state agen...Hard Q04A CPA is engaged to audit the financial statements of a nonissuer. During the audit, the CPA enco...Hard Q05Before accepting an audit engagement for a new nonissuer client, the successor auditor is require...Hard

View all 78 questions →