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      Question

      An auditor identifies a material misstatement due to

      fraud in financial statements. What should be his immediate course of action?
      A Ignore if client is cooperative Correct Answer Incorrect Answer
      B Report it to tax authorities Correct Answer Incorrect Answer
      C Report it to management and modify the audit report Correct Answer Incorrect Answer
      D Resign from audit Correct Answer Incorrect Answer

      Solution

      Auditor must communicate material fraud to management and if unresolved, reflect it in the audit opinion.

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