Reference no: EM132678143

CPA firm. One of WAN's subsidiaries, MINE Ltd., is a successful electronics assembly company that operates in a small Pacific country. The country in which MINE operates has very strict laws governing the transfer of funds to other countries. Violations of these laws may result in fines or the expropriation of the assets of the company. During the current year, you discover that $500,000 worth of foreign currency was smuggled out of the Pacific country by one of MINE's employees and deposited in one of WAN's bank accounts. MINE's management generated the funds by selling company automobiles, which were fully depreciated on MINE's books, to company employees. You are concerned about this illegal act committed by MINE's management and decided to discuss the matter with WAN's management and board of directors seem to be unconcerned with the matter and express the opinion that you are making far too much of a situation involving an immaterial peso amount. They also believe that it is necessary to take any steps to prevent MINE's management from engaging in illegal activities in the future. WAN's legal counsel indicates that the probability is remote that such an illegal act would not be material to the client's consolidated financial statements. Your CPA firm is ready to issue the integrated audit report on WAN's financial statements and internal control for the current year, and you are trying to decide on the appropriate course of action regarding the illegal act.

Required:

Problem a. Discuss the implications of this illegal act by MINE's management.

Problem b. Describe the courses of action that are available to your CPA firm regarding this matter.

Problem c. State your opinion as to the course of action that is appropriate. Explain.