[The following paragraph was effective for audits of financial statements for periods beginning on or after January 1, 1989. 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.]


Normally, an audit in accordance with generally accepted auditing standards does not include audit procedures specifically designed to detect illegal acts. However, procedures applied for the purpose of forming an opinion on the financial statements may bring possible illegal acts to the auditor's attention. For example, such procedures include reading minutes; inquiring of the client's management and legal counsel concerning litigation, claims, and assessments; performing substantive tests of details of transactions or balances. The auditor should make inquiries of management concerning the client's compliance with laws and regulations. Where applicable, the auditor should also inquire of management concerning—

  • The client's policies relative to the prevention of illegal acts.
  • The use of directives issued by the client and periodic representations obtained by the client from management at appropriate levels of authority concerning compliance with laws and regulations.

The auditor also obtains written representations from management concerning the absence of violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. (See section 333, Management Representations.) The auditor need perform no further procedures in this area absent specific information concerning possible illegal acts.