SSARS 19 says that an accountant does not need to report inconsequential instances of illegal acts to management – – doesn’t apply to fraud, just illegal acts.
At first glance that appears rather odd. As long as you are breaking the law in little ways it’s okay? When you think about it, the answer to the question is: yes, don’t worry about it.
Three illustrations of inconsequential illegal acts:
- Making the payroll tax deposit several days late – that is illegal.
- Accumulating several speeding tickets on the company truck over the course of a year – obviously there’s several violations of traffic laws.
- “Minor” violations of tax law, such as not having support for a few disbursements, rather loose reporting of some taxable benefits on W-2s, routinely not documenting who was present for business meals or the business purpose of those meals – those may be common occurrences but they are actually violations of the tax law, and thus technically would be “illegal acts”.
So again, inconsequential illegal acts do not need to be reported to management. It would probably be a really smart idea to put a note in the workpapers that you saw the item and decided not to comment on it. Some of those items would make great recommendations to management.
It is very obvious in the SSARS literature that the option for not reporting illegal acts does not apply to fraud. If you come across something that indicates fraud may have taken place, you better report it to the appropriate level of management.