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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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