ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations
Brightwater Ltd operates a chemical plant subject to environmental licensing laws. These laws do not directly affect the amounts in the financial statements, though breaches could lead to fines and the loss of the operating licence. In the audit of Brightwater, which procedures does ISA 250 (Revised) require the auditor to perform to identify non-compliance with such laws, absent any indication of non-compliance?
The auditor must inquire of management and those charged with governance about compliance, and inspect correspondence with licensing or regulatory authorities. Full compliance testing and legal opinions are not required unless non-compliance is identified or suspected, because these laws do not directly affect the financial statements.
- AFull substantive testing of compliance with all environmental licence conditions
- BInquiring of management and those charged with governance about compliance, and inspecting correspondence with licensing authoritiesCorrect
- CObtaining a legal opinion from external lawyers on every licence condition
- DConfirming compliance directly with the licensing authority in all cases
Explanation
For laws that do not directly affect the financial statements but are fundamental to the business continuing, ISA 250 requires limited procedures: inquiry of management and those charged with governance, and inspection of correspondence with the relevant licensing or regulatory authorities. Full testing of compliance is not required unless there are indications of non-compliance.
Did you get it right without looking?
One question tells you little. A timed set on Laws and regulations shows your real accuracy, how long you take and where you lose marks.
More Laws and regulations questions
- Kestrel Foods plc operates in several countries. During planning for the audit of its financial statements, the audit manager asks what the …
- Under the IESBA Code, an auditor identifies suspected NOCLAR at an audit client, and law in the jurisdiction prohibits tipping-off in connec…
- During the audit of Harbor Textiles Ltd, an audit senior notices payments to a government official that may breach anti-bribery legislation.…
- Auditors of Brightwater Utilities, a regulated water company, are obtaining an understanding of the legal and regulatory framework. Which of…
- During the audit of Orion Bank Ltd, the auditor finds likely non-compliance with a banking regulation by a senior director. Management refus…
- Auditor Mariam finds that Tarn Logistics may have breached a law with only an indirect effect on the financial statements (health and safety…