During the audit you find signs that a senior manager may be diverting payments to a vendor he controls. What do you do?
What the interviewer wants to hear
- Maintains professional skepticism and gathers evidence
- Re-assesses fraud risk and the effect on other areas
- Communicates to an appropriate level of management and those charged with governance
- Considers reporting duties such as Section 143(12) of the Companies Act
- Considers effect on the opinion and continuing the engagement
Model answer
First I would not confront the manager. I would gather more evidence quietly: vendor master changes, bank account details, related addresses or PAN links, approvals and the pattern of payments. I would discuss it with my engagement partner and re-assess fraud risk, because if a senior person is involved, other evidence and representations from that person may be unreliable. Under SA 240, we communicate the matter to a level of management above the person involved and to those charged with governance, normally the audit committee. In India, Section 143(12) of the Companies Act requires the auditor to report fraud by officers or employees: amounts of ₹1 crore or more go to the Central Government, and smaller amounts to the audit committee or board, following the prescribed process. I would extend testing to estimate the effect on the financial statements, consider the impact on the opinion, and document everything carefully.
Can you answer it under time pressure?
Take a timed hard round and get scored on every answer.
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