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SA 250: Consideration of Laws & Regulations in an Audit of FS - Coggle…
SA 250: Consideration of Laws & Regulations in an Audit of FS
Objective
To obtain SAAE
regarding
compliance
with provisions of L&R having
material effects
on determination of material amounts and disclosure in FS
To perform specified Audit Procedures to identify non-compliance
with other L&R that may have a material effect on FS
To respond appropriately to non-compliance or suspected non-compliance
with L&R identified during the audit
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Responsibility of MGT for compliance with L&R
It is the resp. of MGT with the oversight of TCWG to constitute policies, procedures & systems to ensure compliance with all L&R.
Monitoring legal req. and ensuring that operating procedure are designed to meet this req.
Instituting and operating appropriate system of IC
Developing, publicising, and following a code of conduct
Ensuring employees are properly trained and understand code of conduct
Monitoring compliance with the code of conduct
Engaging legal advisors to assist in monitoring legal requirement
Maintaining a register of significant L&R
In large tasks are assigned to an internal audit function, an audit committee, a compliance officer
Responsibility of Auditor & Limitations of Auditor
Auditor is
not responsible for preventing non-compliance
and can't be expected to detect non-compliance with all L&R
Auditor is
responsible for obtaining RA
that the FS taken as a whole are free from MM whether due to fraud or error
In conducting an audit of FS, auditor takes into account the
applicable L&R framework
Inherent Limitations
on auditor's ability to detect non-compliance is greater as,
L&R relating principally to operating aspects not captured by entity's FR system
Non-compliance may involve conduct designed to conceal it
Whether an act constitutes non-compliance is a matter of legal determination
Auditor is not a legal expert
Non-compliance may involve
FR issues — fines & penalties
Impact on auditor's judgement — affecting integrity of MGT and ROMM & AE
Auditor's consideration of compliance with L&R
Obtaining understanding of L&R framework as per SA 315 — Auditor shall obtain a general understanding of
The legal & regulatory framework applicable to the entity and industry or sector in which it operates
How the entity is complying with that framework
Responsibilities for directly related and other L&R
Directly related — obtain SAAE to ensure compliance of form and content of FS + industry specific FR issues
Other L&R — inquiring of MGT & TCWG + inspecting correspondances
WR request — MGT & TCWG to provide WR that all known instances of non-compliance or suspected non-compliance have been disclosed to the auditor
Other AP — shall remain alert to the possibility that other AP applied may bring instances of non-compliance or suspected non-compliance to attention
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Indicators of non-compliance
Investigations by govt. or regulatory dept. or payment of fines
Payments for unspecified services or loans
Sales commission or agents' fee that seems excessive
Purchasing at price sig. above/below MP
Unusual payments by bearer cheque or unnumbered account
Unusual payments towards legal and retainership
Unusual transactions with cos. registered in tax havens
Payments for goods and services made to other than the country from which they originated
Payment w/o proper exchange control documents
Failure of information systems
Unauthorised transactions or improperly recorded transactions
Adverse media comments
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AP when non-compliance is identified or suspected
Further procedure when non-compliance is suspected or identified
Obtain an understanding of nature of the act and circumstances in which it has occurred, and
Further info. to evaluate possible effect on FS
Impact on other areas of Audit
Impact on auditor's risk assessment, and
Reliability of WR and appropriate actions
Further discussion and limitations on audit
If suspects there may be a non-compliance, discuss the matter w/ MGT/TCWG
If MGT/TCWG do not provide sufficient info., consult legal counsel of client or auditor's legal expert, and accordingly obtain legal advice for further course of action
Withdrawal from engagement
If sufficient info. cannot be obtained, auditor shall evaluate effect and is under no limitation to continue
Consider seeking legal advice regarding withdrawal. If prohibited, consider alternative actions incl. reporting in OM paragraph
Reporting of Identified or Suspected non-compliance
To TCWG
Shall communicate matters involving non-compliance w/ L&R unless TCWG is also involved in MGT
If TCWG = MGT, next higher level
Where no higher authority or believes will not be acted upon, obtain Legal Advice
Reporting in AR
Material effect on FS, and not adequately reflected — SA 705 Qualified or Adverse opinion
Limitation imposed by MGT — Disclaimed of opinion
Reporting to Regulatory bodies
Determine where has a responsibility to report to parties outside the entity