3 Auditor’s objectives
- For laws directly related to preparation of financial statements auditor is required to obtain sufficient appropriate audit evidence whether requirements of law were followed
- For laws that do not relate to financial statements preparation then auditor is required gather evidence of compliance for only such requirements of law if violated may cause material misstatements
In identifying such non-compliance auditor’s attitude of professional skepticism is of importance that auditor must maintain during audit engagement
4 Auditor’s consideration
Auditor is required to gain understanding regarding:
- Applicable laws and regulations related to entity and the industry of which it is a part
- How management (or those charged with governance) ensures compliance of applicable laws and regulations
4.1 Audit procedures – identifying non-compliance
- Question management (or those charged with governance) regarding how matters of compliance are dealt
- Reading letters, memos, summons and other communication that has taken between entity and relevant authorities
- Obtaining written representation from management that all events of violations or expected violations that affect the financial statements has been brought to auditor’s knowledge
Auditor must stay vigilant that procedures applied not mainly to verify compliance can also reveal events of non-compliance. However if violations are not identified or expected then auditor is not required to extend audit procedures beyond the procedures mentioned above.
4.2 Audit procedures – non-compliance identified or suspected
In case violations are identified or expected auditor shall assess its effects on reliability of representations made by management, assessed risk etc.
- If auditor has identified a violation then auditor shall:
- gain understanding of its nature and the circumstances in which it happened
- assess the effect of such violation on financial statements
- If auditor expects a violation then auditor shall:
- Communicate his concerns to management or those charged with governance.
- But if auditor is not satisfied with representations made by client concerning compliance and in the eyes of auditor expected violations may affect materially then auditor may seek legal advice.
- If auditor is unable to gather sufficient evidence regarding expected violations then auditor shall assess its effect on auditor’s opinion