Suppose that you are on an audit engagement when you come across evidence that the CEO has been diverting significant amounts of corporate resources for his own purposes. In other words, he is embezzling.

a. What should you do?

b. Why do you think an auditor does not immediately report fraudulent activities, especially those involving large-scale employee theft, to the appropriate law enforcement officials as soon as they are discovered?

c. What does your answer tell you about the nature of the client managementauditor relationship?