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Under what circumstances might an audit team have a duty to disclose management’s frauds to parties...

Under what circumstances might an audit team have a duty to disclose management’s frauds to parties other than the company’s management and its board of directors?

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Answer #1

When a fraud has a material impact on a financial statement or it involves senior management, then it should be directly reported to auditors committee. However immaterial fraud should be reported to the management and auditor committee.

Under some circumstances, the auditors have a responsibility to communicate the fraud outside the entity. For example, when audits of SEC registrants is done, the SEC required auditors to report certain illegal acts related to the Private Securities Litigation Reform Act of 1995.

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