Ah, this is a tricky one. I can see arguments for both B and C. I think I'll go with C - the auditor can send the report but needs to include instructions to limit further distribution. That seems like the most balanced approach between the client's request and the IIA standards.
The Recurring Journal Entry seems like it could be a good option, as it would allow me to automate the allocation process. However, I'm not sure if that's the most efficient method given the specific details of the question.
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