When should an auditor report suspicions of fraud to shareholders?

The correct choice highlights a critical understanding of an auditor's responsibilities concerning fraud reporting. An auditor’s primary duty is to ensure that the financial statements present a true and fair view of the organization's financial position. When fraud is suspected, the auditor must evaluate the implications of that suspicion on the financial statements.

The correct answer focuses on the significance of materiality in financial reporting. If a fraud scheme leads to a material misstatement in the financial statements, it is the auditor’s responsibility to communicate this to the appropriate parties, which could include shareholders, depending upon the severity and nature of the fraud. Material misstatements can affect the decisions of shareholders and other stakeholders, and thus their disclosure is warranted.

The importance of determining materiality before reporting ensures that resources are allocated appropriately and that the auditor's communication aligns with the overall impact of the findings on the financial statements. While fraud should always be investigated if suspected, it does not necessitate direct reporting to shareholders unless there is evidence of a material impact on the financial statements.