Auditors may uncover criminal offences committed by a client or an employee of the client. This puts them in a difficult position, but the auditor should act carefully and correctly and if necessary, take legal advice. The auditor must not commit a criminal offence himself. It is felt that he would have committed a criminal offence if:

(a) He advises his client to commit a criminal offence;

(b) Aids the client in devising or examining a crime;

(c) If he agrees with a client to conceal or destroy evidence or mislead the police with false statements;

(d) If he knows that his client has committed an arrest able offence and tries to impede his arrest and prosecution. Impede does not include refusing to answer questions or refusing to produce documents without the client's consent;

(e) If he knows that his client has committed an offence and agreed to accept consideration to withhold information;

(f) If he knows that the client has committed treason and fails to report the offence to the proper authority.

Discovery of unlawful acts

When an auditor discovers unlawful acts, usually he is not expected to disclose to the police or other authorities unless:

i. The client authorises disclosure;

ii. That disclosure is compelled by process of law for example, a court order;

iii. That disclosure is required in the auditor's own defence;

iv. The circumstances are such that the auditor has a public duty to disclose, for example, when the client has committed a serious crime or his act is treasonable.

Therefore to summarise, the auditor on discovery of an unlawful act should do nothing positively to assist in the offence or to prevent its disclosure. He must bring all offences of employees to the notice of his clients. If the offence is such that its non-disclosure means that the accounts are not showing a true and fair view, then the auditor must insist on disclosure or qualify his audit report. Discovery of material defects in previous accounts should be pointed out to the client with recommendation for disclosure.

Questionable Payments

In some countries, business is often gained by bribing ministers or public officials or officers of companies or firms with whom one wishes to do business. Indeed bribery and corruption are a way of life in some business communities. This is the general area of questionable payments, which may include "commissions, usually based on the amount of business placed". When an auditor discovers such payments, he has to consider what course of action to take. In general, the following conduct by the auditor is acceptable.

(a) He should satisfy himself that the payment is as stated and that he has been told the whole story;

(b) He should satisfy himself that the payments were genuinely made in furtherance of the client's business;

(c) He has to satisfy himself that all directors of the company were aware of the payment and its purposes;

(d) He has to obtain a letter of representation, signed by all the directors to confirm (c);

(e) If the client is a subsidiary, then he has to ensure that the holding company and the primary auditors are aware of the payment and;

(f)He has to consider whether disclosure is required. Generally disclosure is not necessary because such payments are rarely material in the context of the company' accounts as a whole and usually a true and fair view is given without disclosure.