Regulatory Environment: Chapter 2

Functions or Roles of IFAC Board (International Standard on auditing)

1. Serves the public interest

2. Establishes and promotes adherence to high quality professional standards and
furthers their adoption and implementation of such standards
3. Support the global development of the accountancy profession, professional accountants
in business and small and medium practices
4. Shares in the regulation of the profession
5. Speaks out on public interest issues where the profession’s voice is most relevant

*** Responsibility of Auditor on ensuring Management comply with Regulations

 Auditor is not responsible to prevent the non-compliance and not expected to detect any non-
compliance

What Auditors Aim?

The objectives of the auditor are to :
1. Obtain sufficient appropriate audit evidence regarding material amounts and disclosures in
the financial statements that are determined by the provisions of those laws and regulations
generally recognized to have a direct effect on their determination.
2. Perform specified audit procedures that may identify instances of non-compliance with
other laws and regulations that may have a material effect on the f/s
3. Respond appropriately to non-compliance or suspected non-compliance with laws and
regulations identified during the audit

AUDITORS’ CONSIDERATION OF COMPLIANCE WITH LAWS & REGULATIONS:

.12 As part of obtaining an understanding of the entity and its environment, in accordance
with Section 315, Understanding the Entity and Its Environment and Assessing the Risks of
Material Misstatement, the auditor should obtain a general understanding of the following :
a) The legal and regulatory framework applicable to the entity and the industry or sector
in which the entity operates
b) How the entity is complying with that framework

.14 The auditor should perform the following audit procedures that may identify instances of
non-compliance with other laws and regulations that may have a material effect on the f/s.
a) Inquiring of management and when appropriate, those charged with governance about
whether the entity is in compliance with such laws and regulations
b) Inspecting correspondence, if any, with the relevant licensing or regulatory authorities
.15 During the audit, the auditor should remain alert to the possibility that other audit
procedures applied may bring instances of non-compliance or suspected non-compliance with
laws and regulations to the auditor’s attention.

AUDIT PROCUDURES WHEN SUSPECT ANY INCOMPLIANCE:

.17 If the auditor becomes aware of information concerning an instance of non-compliance or
suspected non-compliance with the laws and regulations, the auditor should obtain

a) An understanding of the nature of the act and the circumstances in which it has
occurred and
b) Further information to evaluate the possible effect on the f/s

.18 If the auditor suspects non-compliance may exist, the auditor should discuss the matter with
management (at a level above those involved with the suspected non-compliance, if possible)
and, when appropriate, those charged with governance. If management or, as appropriate,
those charged with governance do not provide sufficient information that supports that
the entity is in compliance with laws and regulations and, in the auditor’s professional
judgment, the effect of the suspected non-compliance may be material to the f/s, the
auditor should consider the need to obtain legal advice.

.19 If sufficient information about suspected non-compliance cannot be obtained, the auditor
should evaluate the effect of the lack of sufficient appropriate audit evidence on the
auditor’s opinion.

.20 The auditor should evaluate the implications of non-compliance in regulation to other
aspects of the audit, including the auditor’s risk assessment and the reliability of written
representations, and take appropriate action.