Contemporary Auditing 10th Edition by Michael Knapp

Exercise 14

The PSLRA requires auditors to report to the SEC illegal acts "that would have a material effect" on a client's financial statements, assuming client management refuses to do so. Briefly describe three hypothetical situations involving potential illegal acts discovered by auditors. Indicate whether the auditors involved in these situations should insist that client management report the given item to the SEC. Defend your decision for each item.