Section 10A covers reporting fraud; which description best identifies its scope?

Section 10A covers reporting fraud; which description best identifies its scope?

• A. It governs reporting to the SEC when fraud is suspected
• B. It applies to all public companies and requires specific reporting actions
• C. It requires no external reporting and is optional
• D. It only concerns internal investigations by auditors

Answer: (A)

Section 10A focuses on the auditor’s duty to report suspected illegal acts that have a direct and material effect on the financial statements to the appropriate authorities. Specifically, it requires the auditor to bring such findings to the attention of the audit committee, and if remedial action isn’t taken, to report to the SEC. This makes the external reporting to the SEC when fraud is suspected the core scope of the section, and it applies to audits of public companies. The description matches this external reporting requirement rather than any notion of optional reporting, internal-only investigations, or applicability to private entities.

Section 10A focuses on the auditor’s duty to report suspected illegal acts that have a direct and material effect on the financial statements to the appropriate authorities. Specifically, it requires the auditor to bring such findings to the attention of the audit committee, and if remedial action isn’t taken, to report to the SEC. This makes the external reporting to the SEC when fraud is suspected the core scope of the section, and it applies to audits of public companies. The description matches this external reporting requirement rather than any notion of optional reporting, internal-only investigations, or applicability to private entities.