NOCLAR

Have you looked at our notes? An auditor’s primary responsibility is to give a written opinion on the financial statements – an internal auditor might have a remit to initiate an investigation – but not the external auditor. When any non-compliance is discovered, the first question to consider is “does that have any implications for the financial statements?” (and hence for the audit opinion, if there is material misstatement). So, for example, a company discharges toxic waste into a river in contravention of environmental law – it could be liable to clean-up costs, penalties/fines, etc – if failing to PROVIDE for such costs gives rise to material misstatement, the auditor would qualify the opinion. However, before getting to that point, the auditor would discuss with management/TCWG the need to make a provision. It isn’t the auditor’s place to report contravention to the environmental authorities – some argue it’s ok “in the public interest” but that’s pretty weak in the real world nowadays. (It’s unlikely the auditor would be the first/only person to detect the non-compliance – let someone else be the whistle-blower!)