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CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS …
CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS
(PSA 250)
Noncompliance
- acts of omission or commission by the entity being audited, either intentional or unintentional, which are contrary to the prevailing laws or regulations
Indications
Investigation by gov't departments or payment of fines or penalties
Payment for unspecified services or loans
Sales commissions that appear excessive
Purchasing prices significantly above or below market prices
Unusual payments in cash, purchases in form of cashier checks payable to bearer or transfers to numbered bank accounts
Unusual transactions with companies registered in tax havens
Payments of goods and services made other than to the country from which the goods or services originated
Payments without proper exchange control documentation
Accounting system which fails to provide adequate audit trail
Unauthorized or improperly recorded transactions
Media comment
Management's responsibility for the compliance with laws and regulations
Monitoring legal requirements
Operating appropriate systems of internal control
Proper implementation of the Code of Conduct
Maintaining a register of significant laws
Auditor's consideration of compliance with laws and regulations
Auditor is not, and cannot be held responsible for preventing noncompliance
An audit is subject to the unavoidable risk that some material misstatements of the financial statements cannot be detected
The auditor should plan and perform the audit with an attitude of professional skepticism
Auditor should obtain a general understanding of the legal and regulatory framework applicable to the entity
Auditor should perform procedures to help identify instances of noncompliance with those laws and regulations where noncompliance should be considered when preparing financial statements
The auditor should obtain sufficient appropriate audit evidence about compliance with those laws and regulations
The auditor should be alert to the fact that procedures applied for the purpose of forming an opinion on the financial statements may bring instances of possible noncompliance to the auditor's attention
The auditor should obtain written representations that management has disclosed to the auditor all known actual or possible noncompliance
Procedures when noncompliance is discovered
The auditor should obtain an understanding of the nature of the act and the circumstances in which it has occurred to evaluate the possible effect on the financial statements
The auditor should document the findings and discuss them with management
When adequate information about the suspected noncompliance cannot be obtained, the auditor should consider the effect of the lack of audit evidence on the auditor's report
The auditor should consider the implications of noncompliance in the reliability of management representations
Reporting of Noncompliance
To Management
To The Users of the Auditor's Report
To Regulatory and Enforcement Authorities