Are external auditors required to report all instances of fraud to management?

External auditors are not required to report all instances of fraud to management. The primary responsibility of external auditors is to provide an opinion on the financial statements and to assess whether they are presented fairly in accordance with the applicable financial reporting framework. While auditors have a duty to report on material misstatements, including those arising from fraud, it is not their responsibility to inform management of every fraud incident encountered during the audit.

In practice, external auditors typically focus on significant fraud that could lead to a material misstatement of the financial statements. They are required to communicate any identified fraud that is material to the financial reporting process. This means that less significant instances of fraud may not need to be reported directly to management, in line with the principle that auditors provide insights primarily regarding issues that can impact the integrity and fairness of the financial statements. Therefore, the emphasis is placed on significant fraud situations rather than all instances of fraud.