AuditingandAssuranceStandardsCouncil

PhilippineStandardonAuditing250(Redrafted)

CONSIDERATIONOFLAWSANDREGULATIONSINANAUD
ITOFFINANCIALSTATEMENTS
PHILIPPINESTANDARDONAUDITING250(REDRAFTED)
CONSIDERATIONOFLAWSANDREGULATIONSINANAUDITOFFINANCIALSTATEM
ENTS
(Effectiveforauditsoffinancialstatementsforperiodsbeginning onorafterDecember15,2009)

CONTENTS
Paragraph
Introduction
ScopeofthisPSA............................................................................
18
...................
EffectiveDate...............................................................................
9
......................
Objectives....................................................................................
10
......................
Definition.....................................................................................
11
.......................
Requirements
TheAuditorsConsiderationofCompliancewithLawsandRegulation
1217
s.........
AuditProceduresWhenNon1821
ComplianceIsIdentifiedorSuspected...............
ReportingofIdentifiedorSuspectedNon2228
Compliance.....................................
Documentation............................................................................
29
........................

ApplicationandOtherExplanatoryMaterial
ResponsibilityforCompliancewithLawsandRegulations.................
A1A6
..............
TheAuditorsConsiderationofCompliancewithLawsandRegulation
s.....
A7A12

AuditProceduresWhenNonComplianceIsIdentifiedorSuspected...............A13A18ReportingofIdentifiedorSuspectedNonCompliance.....................................A19A20Documentation...............................................................................
....................A21
Acknowledgment
PhilippineStandardonAuditingPSA250(Redrafted),ConsiderationofLa
wsandRegulationsinanAuditofFinancialStatementsshouldbereadinco
njunctionwithPSA200(RevisedandRedrafted),OverallObjectivesoftheI
ndependentAuditorandtheConductofanAuditinAccordancewithPhilippi

neStandardsonAuditing.

[ReferencesinthisPSAto otherPSAsthathavenotyetbeen finalized reflecttheworking titlesof

thosePSAs.Thereferencesareindicated in bracketsandwillbeupdated whenthosePSAsarefi
nalized.]

[PSA200(RevisedandRedrafted)wasapproved bytheAASCin October2008.]

Introduction
ScopeofthisPSA
1.
ThisPhilippineStandardonAuditingPSAdealswiththeauditorsresponsibi
litytoconsiderlawsandregulationswhenperforminganauditoffinancialst
atements.ThisPSAdoesnotapplytootherassuranceengagementsinwhic
htheauditorisspecificallyengagedtotestandreportseparatelyoncomplia
ncewithspecificlawsorregulations.
EffectofLawsandRegulations
2.
Theeffectonfinancialstatementsoflawsandregulationsvariesconsidera
bly.Thoselawsandregulationstowhichanentityissubjectconstitutethele
galandregulatoryframework.Theprovisionsofsomelawsorregulationsha
veadirecteffectonthefinancialstatementsinthattheydeterminetherepor
tedamountsanddisclosuresinanentitysfinancialstatements.Otherlaws

orregulationsaretobecompliedwithbymanagementorsettheprovisions
underwhichtheentityisallowedtoconductitsbusinessbutdonothaveadir
ecteffectonanentitysfinancialstatements.Someentitiesoperateinheavi
lyregulatedindustries(suchasbanksandchemicalcompanies).Othersare
subjectonlytothemanylawsandregulationsthatrelategenerallytotheop
eratingaspectsofthebusiness(suchasthoserelatedtooccupationalsafet
yandhealth,andequalemploymentopportunity).Noncompliancewithlawsandregulationsmayresultinfines,litigationorotherc
onsequencesfortheentitythatmayhaveamaterialeffectonthefinancialst
atements.
ResponsibilityofManagementforCompliancewithLawsandRegulations
3.
Itistheresponsibilityofmanagement,withtheoversightofthosecharge
dwithgovernance,toensurethattheentitysoperationsareconductedi
naccordancewiththeprovisionsoflawsandregulations,includingcomp
liancewiththeprovisionsoflawsandregulationsthatdeterminetherepo
rtedamountsanddisclosuresinanentitysfinancialstatements.
(Ref:Para.A1A2)
ResponsibilityoftheAuditor(Ref:Para.A3A6)

TherequirementsinthisPSAaredesignedtoassisttheauditorinidentifying
materialmisstatementofthefinancialstatementsduetononcompliancewithlawsandregulations.However,theauditorisnotresponsi
bleforpreventingnoncomplianceandcannotbeexpectedtodetectnoncompliancewithalllawsandregulations.
Theauditorisresponsibleforobtainingreasonableassurancethatthefina
ncialstatements,takenasawhole,arefreefrommaterialmisstatement,w
1
hethercausedbyfraudorerror.
Inconductinganauditoffinancialstatements,theauditortakes

PSA200(Revised andRedrafted),OverallObjectivesoftheIndependentAuditorand theCondu

ctofan Auditin Accordancewith InternationalStandardson Auditing,paragraph 5.
(Seefootnote.)

intoaccounttheapplicablelegalandregulatoryframework.Owingtothein
herentlimitationsofanaudit,thereisanunavoidableriskthatsomemateria
lmisstatementsinthefinancialstatementsmaynotbedetected,eventhou
ghthe
2

auditisproperlyplannedandperformedinaccordancewiththePSAs.Inthe
contextoflawsandregulations,thepotentialeffectsofinherentlimitations
ontheauditorsabilitytodetectmaterialmisstatementsaregreaterforsuc
hreasonsasthefollowing:
Therearemanylawsandregulations,relatingprincipallytotheoperatinga
spectsofanentity,thattypicallydonotaffectthefinancialstatementsanda
renotcapturedbytheentitysinformationsystemsrelevanttofinancialrep
orting.
Noncompliancemayinvolveconductdesignedtoconcealit,suchascollusion,f

orgery,deliberatefailuretorecordtransactions,managementoverrideof
controlsorintentionalmisrepresentationsbeingmadetotheauditor.
Whetheranactconstitutesnoncomplianceisultimatelyamatterforlegaldeterminationbyacourtoflaw.
Ordinarily,thefurtherremovednoncomplianceisfromtheeventsandtransactionsreflectedinthefinancials
tatements,thelesslikelytheauditoristobecomeawareofitortorecogniz
ethenoncompliance.
6.
ThisPSAdistinguishestheauditorsresponsibilitiesinrelationtocompli
ancewithtwodifferentcategoriesoflawsandregulationsasfollows:

(a)

Theprovisionsofthoselawsandregulationsgenerallyrecognizedtohavea
directeffectonthedeterminationofmaterialamountsanddisclosuresinth
efinancialstatementssuchastaxandpensionlawsandregulations(seepa
ragraph13);and
(b)
Otherlawsandregulationsthatdonothaveadirecteffectonthedeterminat
ionoftheamountsanddisclosuresinthefinancialstatements,butcomplia
ncewithwhichmaybefundamentaltotheoperatingaspectsofthebusines
s,toanentitysabilitytocontinueitsbusiness,ortoavoidmaterialpenalties
(forexample,compliancewiththetermsofanoperatinglicense,complianc
ewithregulatorysolvencyrequirements,orcompliancewithenvironment
alregulations);noncompliancewithsuchlawsandregulationsmaythereforehaveamateriale
ffectonthefinancialstatements(seeparagraph14).

7.
InthisPSA,differingrequirementsarespecifiedforeachoftheabovecateg
oriesoflawsandregulations.Forthecategoryreferredtoinparagraph6(a)
,theauditorsresponsibilityistoobtainsufficientappropriateauditeviden
ceaboutcompliancewiththeprovisionsofthoselawsandregulations.Fort
hecategory
2
PSA200 (Revised andRedrafted),paragraphA38.[Seefootnote.]

referredtoinparagraph6(b),theauditorsresponsibilityislimitedtounder
takingspecifiedauditprocedurestohelpidentifynoncompliancewiththoselawsandregulationsthatmayhaveamaterialeffec
tonthefinancialstatements.
8.
TheauditorisrequiredbythisPSAtoremainalerttothepossibilitythatothe
rauditproceduresappliedforthepurposeofforminganopiniononfinancia

lstatementsmaybringinstancesofidentifiedorsuspectednoncompliancetotheauditorsattention.Maintaininganattitudeofprofessio
nalskepticismthroughouttheaudit,asrequiredbyPSA200(RevisedandR
3
edrafted),
isimportantinthiscontext,givetheextentoflawsandregulationsthataffe
cttheentity.
EffectiveDate
9.
ThisPSAiseffectiveforauditsoffinancialstatementsforperiodsbeginning
onorafterDecember15,2009.

Objectives
10.

Theobjectivesoftheauditorare:

(a)

Toobtainsufficientappropriateauditevidenceregardingcompliancewitht
heprovisionsofthoselawsandregulationsgenerallyrecognizedtohavead
irecteffectonthedeterminationofmaterialamountsanddisclosuresinthe
financialstatements;
(b)

Toperformspecifiedauditprocedurestohelpidentifyinstancesofnoncompliancewithotherlawsandregulationsthatmayhaveamaterialeffect
onthefinancialstatements;and
(c)
Torespondappropriatelytononcomplianceorsuspectednoncompliancewithlawsandregulationsidentifiedduringtheaudit.

Definition
11.
ForthepurposesofthisPSA,thefollowingtermhasthemeaningattrib
utedbelow:
Noncompliance
Actsofomissionorcommissionbytheentity,eitherintentionalorunintent
ional,whicharecontrarytotheprevailinglawsorregulations.Suchactsinc
ludetransactionsenteredintoby,orinthenameof,theentity,oronitsbeha
lf,bythosechargedwithgovernance,managementoremployees.Noncompliancedoesnotincludepersonalmisconduct(unrelatedtothebusin
essactivitiesoftheentity)bythosechargedwithgovernance,manageme
ntoremployeesoftheentity.

PSA200 (Revised andRedrafted),paragraph15.[Seefootnote.]

Requirements
TheAuditorsConsiderationofCompliancewithLawsandRegulations
12.
Aspartofobtaininganunderstandingoftheentityanditsenvironm
4
entinaccordancewithPSA315(Redrafted),
theauditorshallobtainageneralunderstandingof:

(a)

Thelegalandregulatoryframeworkapplicabletotheentityandtheindustr
yorsectorinwhichtheentityoperates;and
(b)
Howtheentityiscomplyingwiththatframework.(Ref:Para.A7)

Theauditorshallobtainsufficientappropriateauditevidenceregardingco
mpliancewiththeprovisionsofthoselawsandregulationsgenerallyrecog
nizedtohaveadirecteffectonthedeterminationofmaterialamountsanddi
sclosuresinthefinancialstatements.(Ref:Para.A8)
1. 14.
Theauditorshallperformthefollowingauditprocedurestohelpidentify
instancesofnoncompliancewithotherlawsandregulationsthatmayhaveamaterialeff
ectonthefinancialstatements:
2. (a)
Inquiringofmanagementand,whereappropriate,thosechargedwithg
overnance,astowhethertheentityisincompliancewithsuchlawsandr
egulations;and
3. (b)

Inspectingcorrespondence,ifany,withtherelevantlicensingorregula
toryauthorities.(Ref:Para.A9A10)
Duringtheaudit,theauditorshallremainalerttothepossibilitythatothera
uditproceduresappliedmaybringinstancesofnoncomplianceorsuspectednoncompliancewithlawsandregulationstotheauditorsattention.
(Ref:Para.A11)
Theauditorshallrequestmanagementand,whereappropriate,thosechar
gedwithgovernancetoprovidewrittenrepresentationsthatallknowninst
ancesofnoncomplianceorsuspectednoncompliancewithlawsandregulationswhoseeffectsshouldbeconsidered
whenpreparingfinancialstatementshavebeendisclosedtotheauditor.
(Ref:Para.A12)
Intheabsenceofidentifiedorsuspectednoncompliance,theauditorisnotrequiredtoperformauditproceduresregardi
ngtheentityscompliancewithlawsandregulations,otherthanthoseseto
utinparagraphs1216.
1. 18.

Iftheauditorbecomesawareofinformationconcerninganinstanceofn
oncomplianceorsuspectednoncompliancewithlawsandregulations,theauditorshallobtain:
(Ref:Para.A13)
2. (a)
Anunderstandingofthenatureoftheactandthecircumstancesinwhich
ithasoccurred;and
3. (b)

6
7

Furtherinformationtoevaluatethepossibleeffectonthefinancialstate
ments.(Ref:Para.A14)
Iftheauditorsuspectstheremaybenoncompliance,theauditorshalldiscussthematterwithmanagementand,wh
ereappropriate,thosechargedwithgovernance.Ifmanagementor,asapp
ropriate,thosechargedwithgovernancedonotprovidesufficientinformat
ionthatsupportsthattheentityisincompliancewithlawsandregulationsa
nd,intheauditorsjudgment,theeffectofthesuspectednoncompliancemaybematerialtothefinancialstatements,theauditorshallc
onsidertheneedtoobtainlegaladvice.(Ref:Para.A15A16)
Ifsufficientinformationaboutsuspectednoncompliancecannotbeobtained,theauditorshallevaluatetheeffectofthel
ackofsufficientappropriateauditevidenceontheauditorsopinion.
Theauditorshallevaluatetheimplicationsofnoncomplianceinrelationtootheraspectsoftheaudit,includingtheauditorsri
skassessmentandthereliabilityofwrittenrepresentations,andtakeappro
priateaction.(Ref:Para.A17A18)

PSA315 (Redrafted),Identifyingand AssessingtheRisksofMaterialMisstatementThroughUnd

erstandingtheEntityand ItsEnvironment,paragraph11.

AuditProceduresWhenNonComplianceIsIdentifiedorSuspected
ReportingofIdentifiedorSuspectedNonCompliance
ReportingNonCompliancetoThoseChargedwithGovernance

Unlessallofthosechargedwithgovernanceareinvolvedinmanagementof
theentity,andthereforeareawareofmattersinvolvingidentifiedorsuspec
5
tednoncompliancealreadycommunicatedbytheauditor,
theauditorshallcommunicatewiththosechargedwithgovernancematter
sinvolvingnoncompliancewithlawsandregulationsthatcometotheauditorsattentiond
uringthecourseoftheaudit,otherthanwhenthemattersareclearlyincons
equential.
If,intheauditorsjudgment,thenoncompliancereferredtoinparagraph22isbelievedtobeintentionalandmat
erial,theauditorshallcommunicatethemattertothosechargedwithgover
nanceassoonaspracticable.
Iftheauditorsuspectsthatmanagementorthosechargedwithgovernanc
eareinvolvedinnoncompliance,theauditorshallcommunicatethemattertothenexthigherle
velofauthorityattheentity,ifitexists,suchasanauditcommitteeor

PSA260 (Revised andRedrafted),Communicationwith ThoseCharged with Governance,par

agraph9.

supervisoryboard.Wherenohigherauthorityexists,oriftheauditorbeliev
esthatthecommunicationmaynotbeacteduponorisunsureastothepers
ontowhomtoreport,theauditorshallconsidertheneedtoobtainlegaladvi
ce.
ReportingNonComplianceintheAuditorsReportontheFinancialStatements

Iftheauditorconcludesthatthenoncompliancehasamaterialeffectonthefinancialstatements,andhasnotbe
enadequatelyreflectedinthefinancialstatements,theauditorshall,inacc
ordancewithPSA705(RevisedandRedrafted),expressaqualifiedoradver
6
seopiniononthefinancialstatements.
Iftheauditorisprecludedbymanagementorthosechargedwithgovernan
cefromobtainingsufficientappropriateauditevidencetoevaluatewhethe
rnoncompliancethatmaybematerialtothefinancialstatementshas,orislikelyt
ohave,occurred,theauditorshallexpressaqualifiedopinionordisclaiman
opiniononthefinancialstatementsonthebasisofalimitationonthescopeo
ftheauditinaccordancewithPSA705(RevisedandRedrafted).
Iftheauditorisunabletodeterminewhethernoncompliancehasoccurredbecauseoflimitationsimposedbythecircumsta
ncesratherthanbymanagementorthosechargedwithgovernance,theau
ditorshallevaluatetheeffectontheauditorsopinioninaccordancewithPS
A705(RevisedandRedrafted).

ReportingNonCompliancetoRegulatoryandEnforcementAuthorities
28.

Iftheauditorhasidentifiedorsuspectsnoncompliancewithlawsandregulations,theauditorshalldeterminewhether
theauditorhasaresponsibilitytoreporttheidentifiedorsuspectednoncompliancetopartiesoutsidetheentity.(Ref:Para.A19A20)

Documentation
29.

Theauditorshalldocumentidentifiedorsuspectednoncompliancewithlawsandregulationsandtheresultsofdiscussionwithma
nagementand,whereapplicable,thosechargedwithgovernanceandoth
erpartiesoutsidetheentity.(Ref:Para.A21)
***

PSA705 (Revised andRedrafted),ModificationstotheOpinionin theIndependentAuditorsRep

ort,paragraphs89.[PSA705(Revised and Redrafted)wasapproved bytheAASCinNovember2

008.]

ApplicationandOtherExplanatoryMaterial
ResponsibilityforCompliancewithLawsandRegulations
ResponsibilityofManagementforCompliancewithLawsandRegulations(Ref:Pa
ra.3)
A1.Management,withtheoversightofthosechargedwithgovernance,isrespon
sibleforensuringthattheentitysoperationsareconductedinaccordance
withlawsandregulations.Lawsandregulationsmayaffectanentitysfina
ncialstatementsindifferentways:forexample,mostdirectly,theymayaff
ectspecificdisclosuresrequiredoftheentityinthefinancialstatementsort
heymayprescribetheapplicablefinancialreportingframework.Theyma
yalsoestablishcertainlegalrightsandobligationsoftheentity,someofwhi
chwillberecognizedintheentitysfinancialstatements.Inaddition,lawsa
ndregulationsmayimposepenaltiesincasesofnoncompliance.
A2.Thefollowingareexamplesofthetypesofpoliciesandproceduresanentitym
ayimplementtoassistinthepreventionanddetectionofnoncompliancewithlawsandregulations:
Monitoringlegalrequirementsandensuringthatoperatingproceduresare
designedtomeettheserequirements.
Institutingandoperatingappropriatesystemsofinternalcontrol.
Developing,publicizingandfollowingacodeofconduct.
Ensuringemployeesareproperlytrainedandunderstandthecodeofcond
uct.
Monitoringcompliancewiththecodeofconductandactingappropriatelyt
odisciplineemployeeswhofailtocomplywithit.
Engaginglegaladvisorstoassistinmonitoringlegalrequirements.
1.
Maintainingaregisterofsignificantlawsandregulationswithwhichthe
entityhastocomplywithinitsparticularindustryandarecordofcomplai
nts.
2. Inlargerentities,thesepoliciesandproceduresmaybesupplementedb
yassigningappropriateresponsibilitiestothefollowing:
Aninternalauditfunction.
Anauditcommittee.
Acompliancefunction.
ResponsibilityoftheAuditor(Ref:Para.48)
A3.Noncompliancebytheentitywithlawsandregulationsmayresultinamaterial
misstatementofthefinancialstatements.Detectionofnoncompliance,regardlessofmateriality,mayaffectotheraspectsoftheauditi
ncluding,forexample,theauditorsconsiderationoftheintegrityofmanag
ementoremployees.
A4.Whetheranactconstitutesnon-

compliancewithlawsandregulationsisamatterforlegaldetermination,
whichisordinarilybeyondtheauditorsprofessionalcompetencetodeter
mine.Nevertheless,theauditorstraining,experienceandunderstandin
goftheentityanditsindustryorsectormayprovideabasistorecognizetha
tsomeacts,comingtotheauditorsattention,mayconstitutenoncompliancewithlawsandregulations.
A5.Inaccordancewithspecificstatutoryrequirements,theauditormaybespecifi
callyrequiredtoreport,aspartoftheauditofthefinancialstatements,onwh
ethertheentitycomplieswithcertainprovisionsoflawsorregulations.Inth
7
esecircumstances,[proposed]ISA700(Redrafted)
8
orISA800(RevisedandRedrafted)
dealwithhowtheseauditresponsibilitiesareaddressedintheauditorsrep
ort.Furthermore,wheretherearespecificstatutoryreportingrequirement
s,itmaybenecessaryfortheauditplantoincludeappropriatetestsforcomp
liancewiththeseprovisionsofthelawsandregulations.
ConsiderationsSpecifictoPublicSectorEntities
A6.Inthepublicsector,theremaybeadditionalauditresponsibilitieswithrespec
ttotheconsiderationoflawsandregulationswhichmayrelatetotheaudit
offinancialstatementsormayextendtootheraspectsoftheentitysoper
ations.
TheAuditorsConsiderationofCompliancewithLawsandRegulations
ObtaininganUnderstandingoftheLegalandRegulatoryFramework(Ref:Para.12
)
A7.Toobtainageneralunderstandingofthelegalandregulatoryframework,andh
owtheentitycomplieswiththatframework,theauditormay,forexample:
Usetheauditorsexistingunderstandingoftheentitysindustry,regulator
yandotherexternalfactors;
Updatetheunderstandingofthoselawsandregulationsthatdirectlydeter
minethereportedamountsanddisclosuresinthefinancialstatements;
7
[PSA700(Redrafted),Formingan Opinion andReportingon FinancialStatements,paragraph [
tobeinserted].]
8
[PSA800(Revised and Redrafted)SpecialConsiderations
AuditsofFinancialStatementsPreparedinAccordancewith SpecialPurposeFrameworks,para
graph [tobeinserted].]

1
2
3

Inquireofmanagementastootherlawsorregulationsthatmaybeexpecte
dtohaveafundamentaleffectontheoperationsoftheentity;
Inquireofmanagementconcerningtheentityspoliciesandproceduresre
gardingcompliancewithlawsandregulations;and
Inquireofmanagementregardingthepoliciesorproceduresadoptedforid
entifying,evaluatingandaccountingforlitigationclaims.

LawsandRegulationsGenerallyRecognizedtoHaveaDirectEffectontheDeter

minationofMaterialAmountsandDisclosuresintheFinancialStatements
(Ref:Para.13)
A8.Certainlawsandregulationsarewellestablished,knowntotheentityandwithintheentitysindustryorsector,an
drelevanttotheentitysfinancialstatements(asdescribedinparagraph6(
a)).Theycouldincludethosethatrelateto,forexample:

1
2
3
4

Theformandcontentoffinancialstatements;
Industryspecificfinancialreportingissues;
Accountingfortransactionsundergovernmentcontracts;or
Theaccrualorrecognitionofexpensesforincometaxorpensioncosts.
Somemattersmayberelevanttospecificassertions(forexample,thecomp
letenessofincometaxprovisions),whileothersmayberelevanttothefinan
cialstatementsasawhole(forexample,therequiredstatementsconstituti
ngacompletesetoffinancialstatements).Noncompliancewithotherlawsandregulationsmayresultinfines,litigationoro
therconsequencesfortheentity,thecostsofwhichmayneedtobeprovided
forinthefinancialstatements,butarenotconsideredtohaveadirecteffecto
nthefinancialstatementsasdescribedinparagraph6(a).

ProcedurestoIdentifyInstancesofNonCompliance
OtherLawsandRegulations(Ref:Para.14)
A9.Certainotherlawsandregulationsmayneedparticularattentionbytheaudito
rbecausetheyhaveafundamentaleffectontheoperationsoftheentity(asd
escribedinparagraph6(b)).Noncompliancewithlawsandregulationsthathaveafundamentaleffectonthe
operationsoftheentitymaycausetheentitytoceaseoperations,orcallinto
questiontheentityscontinuanceasagoingconcern.Forexample,noncompliancewiththerequirementsoftheentityslicenseorotherentitleme
nttoperformitsoperationscouldhavesuchanimpact(forexample,foraban
k,noncompliancewithcapitalorinvestmentrequirements).Therearealsomanyl
awsandregulationsrelatingprincipallytotheoperatingaspectsoftheentit
ythattypicallydonotaffectthefinancialstatementsandarenotcapturedby
theentitysinformationsystemsrelevanttofinancialreporting.
A10.Asthefinancialreportingconsequencesofotherlawsandregulationscanv
arydependingontheentitysoperations,theauditproceduresrequiredb
yparagraph14aredirectedtobringingtotheauditorsattentioninstance
sofnoncompliancewithlawsandregulationsthatmayhaveamaterialeffectonth
efinancialstatements.
NonComplianceBroughttotheAuditorsAttentionbyOtherAuditProcedur
es(Ref:Para.15)
A11.Auditproceduresappliedtoformanopiniononthefinancialstatementsmayb
ringinstancesofnoncomplianceorsuspectednoncompliancewithlawsandregulationstotheauditorsattention.Forexampl
e,suchauditproceduresmayinclude:

1
2
3

Readingminutes;
Inquiringoftheentitysmanagementandinhouselegalcounselorexternallegalcounselconcerninglitigation,claimsa
ndassessments;and
Performingsubstantivetestsofdetailsofclassesoftransactions,accountb
alancesordisclosures.

WrittenRepresentations(Ref:Para.16)
A12.Becausetheeffectonfinancialstatementsoflawsandregulationscanvaryco
nsiderably,writtenrepresentationsprovidenecessaryauditevidenceabo
utmanagementsknowledgeofidentifiedorsuspectednoncompliancewithlawsandregulations,whoseeffectsmayhaveamateriale
ffectonthefinancialstatements.However,writtenrepresentationsdonot
providesufficientappropriateauditevidenceontheirownand,accordingly
,donotaffectthenatureandextent
9

ofotherauditevidencethatistobeobtainedbytheauditor.
AuditProceduresWhenNonComplianceIsIdentifiedorSuspected
IndicationsofNonCompliancewithLawsandRegulations(Ref:Para.18)
A13.Whentheauditorbecomesawareoftheexistenceof,orinformationabou
t,thefollowingmatters,itmaybeanindicationofnoncompliancewithlawsandregulations:
Investigationsbyregulatoryorganizationsandgovernmentdepartments
orpaymentoffinesorpenalties.
Paymentsforunspecifiedservicesorloanstoconsultants,relatedparties,
employeesorgovernmentemployees.
Salescommissionsoragentsfeesthatappearexcessiveinrelationtothos
eordinarilypaidbytheentityorinitsindustryortotheservicesactuallyrecei
ved.
Purchasingatpricessignificantlyaboveorbelowmarketprice.
Unusualpaymentsincash,purchasesintheformofcashierschequespaya
bletobearerortransferstonumberedbankaccounts.
Unusualtransactionswithcompaniesregisteredintaxhavens.
Paymentsforgoodsorservicesmadeotherthantothecountryfromwhicht
hegoodsorservicesoriginated.
Paymentswithoutproperexchangecontroldocumentation.
Existenceofaninformationsystemwhichfails,whetherbydesignorbyacci
dent,toprovideanadequateaudittrailorsufficientevidence.
Unauthorizedtransactionsorimproperlyrecordedtransactions.
PSA580 (Revised andRedrafted),Written Representations,paragraph 4.

Adversemediacomment.MattersRelevanttotheAuditorsEvaluation(Ref:Para.
18(b))A14.Mattersrelevanttotheauditorsevaluationofthepossibleeffectonthe

financial
statementsinclude:
Thepotentialfinancialconsequencesofnoncompliancewithlawsandregulationsonthefinancialstatementsincludin
g,forexample,theimpositionoffines,penalties,damages,threatofexprop
riationofassets,enforceddiscontinuationofoperations,andlitigation.
Whetherthepotentialfinancialconsequencesrequiredisclosure.
Whetherthepotentialfinancialconsequencesaresoseriousastocallintoq
uestionthefairpresentationofthefinancialstatements,orotherwisemake
thefinancialstatementsmisleading.
AuditProcedures(Ref:Para.19)
A15.Theauditormaydiscussthefindingswiththosechargedwithgovernancewh
eretheymaybeabletoprovideadditionalauditevidence.Forexample,thea
uditormayconfirmthatthosechargedwithgovernancehavethesameund
erstandingofthefactsandcircumstancesrelevanttotransactionsorevent
sthathaveledtothepossibilityofnoncompliancewithlawsandregulations.
A16.Ifmanagementor,asappropriate,thosechargedwithgovernancedonotpro
videsufficientinformationtotheauditorthattheentityisinfactincomplianc
ewithlawsandregulations,theauditormayconsideritappropriatetoconsu
ltwiththeentitysinhouselegalcounselorexternallegalcounselabouttheapplicationofthela
wsandregulationstothecircumstances,includingthepossibilityoffraud,a
ndthepossibleeffectsonthefinancialstatements.Whenitisnotconsidered
appropriatetoconsultwiththeentityslegalcounselorwhentheauditorisn
otsatisfiedwiththelegalcounselsopinion,theauditormayconsideritappr
opriatetoconsulttheauditorsownlegalcounselastowhetheracontravent
ionofalaworregulationisinvolved,thepossiblelegalconsequences,includ
ingthepossibilityoffraud,andwhatfurtheraction,ifany,theauditorwouldt
ake.
EvaluatingtheImplicationsofNonCompliance(Ref:Para.21)
A17.Asrequiredbyparagraph21,theauditorevaluatestheimplicationsofnoncomplianceinrelationtootheraspectsoftheaudit,includingtheauditorsri
skassessmentandthereliabilityofwrittenrepresentations.Theimplicatio
nsofparticularinstancesofnoncomplianceidentifiedbytheauditorwilldependontherelationshipofthepe
rpetrationandconcealment,ifany,oftheacttospecificcontrolactivitiesan
dthelevelofmanagementoremployeesinvolved,especiallyimplicationsa
risingfromtheinvolvementofthehighestauthoritywithintheentity.
A18.Inexceptionalcases,theauditormayconsiderwhether,unlessprohibitedbyl
aworregulation,withdrawalfromtheengagementisnecessarywhenman
agementorthosechargedwithgovernancedonottaketheremedialactiont
hattheauditorconsidersappropriateinthecircumstances,evenwhenthen
on-

complianceisnotmaterialtothefinancialstatements.Whendecidingwhet
herwithdrawalfromtheengagementisnecessary,theauditormayconside
rseekinglegaladvice.Ifwithdrawalfromtheengagementisprohibited,the
auditormayconsideralternativeactions,includingdescribingthenon10
complianceinanOtherMatter(s)paragraphintheauditorsreport.
ReportingofIdentifiedorSuspectedNonCompliance
ReportingNonCompliancetoRegulatoryandEnforcementAuthorities(Ref:Para.28)
A19.Theauditorsprofessionaldutytomaintaintheconfidentialityofclientinform
ationmayprecludereportingidentifiedorsuspectednoncompliancewithlawsandregulationstoapartyoutsidetheentity.However,
theauditorslegalresponsibilitiesvarybyjurisdictionand,incertaincircum
stances,thedutyofconfidentialitymaybeoverriddenbystatute,thelawor
courtsoflaw.Insomejurisdictions,theauditorofafinancialinstitutionhasas
tatutorydutytoreporttheoccurrence,orsuspectedoccurrence,ofnoncompliancewithlawsandregulationstosupervisoryauthorities.Also,inso
mejurisdictions,theauditorhasadutytoreportmisstatementstoauthoriti
esinthosecaseswheremanagementand,whereapplicable,thosecharged
withgovernancefailtotakecorrectiveaction.Theauditormayconsideritap
propriatetoobtainlegaladvicetodeterminetheappropriatecourseofactio
n.
PSA706(Revised and Redrafted),EmphasisofMatterParagraphsand OtherMatterParagraphsin
the
IndependentAuditorsReport,paragraph 8.[PSA706(Revised and Redrafted)wasapproved b
ythe
AASCin November2008.]

ConsiderationsSpecifictoPublicSectorEntitiesA20.Apublicsectorauditormayb
eobligedtoreportoninstancesofnoncompliance
togoverningauthoritiesortoreportthemintheauditorsreport.Document
ation(Ref:Para.29)A21.Theauditorsdocumentationoffindingsregardingidenti
fiedorsuspectednon
compliancewithlawsandregulationsmayinclude,forexample:
Copiesofrecordsordocuments.
Minutesofdiscussionsheldwithmanagement,thosechargedwithgovern
anceorpartiesoutsidetheentity.

Acknowledgment
ThisPSAisbasedonInternationalStandardonAuditing250(Redrafted),Conside
rationofLawsandRegulationsinanAuditofFinancialStatements,issuedbytheIn
ternationalAuditingandAssuranceStandardsBoard.

TherearenosignificantdifferencesbetweenthisPSA250(Redrafted)andIS
A250(Redrafted).
ThisPSA250(Redrafted),ConsiderationofLawsandRegulationsinanAuditofFin
ancialStatements,wasunanimouslyapprovedforadoptiononJuly28,2008byth
emembersoftheAuditingandAssuranceStandardsCouncil.

BenjaminR.Punongbayan,Chairman

FelicidadA.Abad

AntonioP.Acyatan

ErwinVincentG.Alcala

FroilanG.Ampil

DavidL.Balangue

Ma.GraciaF.CasalsDiaz

EliseoA.Fernandez

JaimeP.Naranjo

Ma.CeciliaF.Ortiz

NestorioC.Roraldo

JoaquinP.Tolentino

EdithaO.Tuason

JaimeE.Ysmael