Question

Under the Private Securities Litigation Reform Act of 1995, which of the following actions must an auditor undertake if she determines that the public company client has committed an illegal act with a material impact on the client’s financial statements?

1. Make an 8-K filing with the SEC within four business days of the accountant’s determination.
2. Calculate the prospective impact on the client’s financial statements and, unless the impact is inconsequential, inform the client’s management and audit committee.
3. File a Form 95 Report with the Public Company Accounting Oversight Board.
4. Maintain the confidentiality of the information under the Federal Professional-Client Privilege.

Answer 1

Answer: Option A

Explanation: An auditor cannot disclose an illegal act to anyone except client's senior management and its audit committee or board of directors or as required in special circumstances. One of such special circumstance is reporting in form 8-K. Thus when an auditor determines that the public company client has committed an illegal act with a material impact on the client’s financial statements, she should make an 8-K filing with the SEC within four business days.