[The following paragraph was effective for audits of fiscal years beginning on or after December 15, 2010. It was amended, effective for audits of fiscal years beginning on or after December 15, 2012. See  PCAOB Release No. 2012-004 Return to the current version.]


Whenever the auditor has determined that there is evidence that fraud may exist, that matter should be brought to the attention of an appropriate level of management. This is appropriate even if the matter might be considered inconsequential, such as a minor defalcation by an employee at a low level in the entity's organization. Fraud involving senior management and fraud (whether caused by senior management or other employees) that causes a material misstatement of the financial statements should be reported directly to the audit committee. In addition, the auditor should reach an understanding with the audit committee regarding the nature and extent of communications with the committee about misappropriations perpetrated by lower-level employees.