Persuasive evidence indicates that a member of senior management has been involved in insider trading that would be considered fraudulent. However, the evidence was encountered during an operational audit and is not considered relevant to the audit. Which of the following is the most appropriate action for the chief audit executive to take?
When persuasive evidence of fraudulent activity by a senior management member is discovered during an operational audit but is not relevant to that specific audit, the chief audit executive's most appropriate action is to report the evidence to the chairperson of the audit committee and recommend an investigation. This ensures that the matter is handled with the necessary authority and impartiality, complies with governance principles, and upholds the integrity and objectivity of the internal audit function. Reporting to external parties or discontinuing the audit work would either bypass internal governance structures or neglect a serious issue.
evidence has been established (keyword: PERSUASIVE EVIDENCE), hence no further audit work is required. Need to report to BOD. For fraud cases, avoid select answer with reporting to external parties.
Can someone explain why B?
Answer A and C requires to report external and this is consider a violation , and D if the CAE didn't disclose the issue to the proper side according to the Org policy or command, it will be a violation of objectivity. The best choice B.
This is a fraud case and the governing bodies must be promptly informed. If senior management is involved, the person left to be informed is the Board (Audit Committee).