ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations
Brindle Ltd is audited by Corvin LLP. The company operates a chemical plant and is subject to environmental licensing laws that do not directly affect the amounts in the financial statements but whose breach could result in a material fine or closure. Under ISA 250 (Revised), what is the auditor's required work on this second category of laws and regulations?
For laws that do not directly affect the financial statements but may matter to the entity's ability to continue operating, the auditor performs specified procedures, such as inquiring of management and inspecting regulator correspondence, to identify non-compliance. The auditor is not required to obtain evidence of full compliance.
- APerform specified procedures to help identify instances of non-compliance that may have a material effect on the financial statements, such as inquiring of management and inspecting correspondence with regulatorsCorrect
- BObtain sufficient appropriate evidence of full compliance with all such laws
- CPerform no procedures unless the auditor suspects non-compliance
- DRely solely on a management representation letter confirming compliance
Explanation
For laws not directly affecting the financial statements but fundamental to operating ability, ISA 250 limits the auditor to specified procedures: inquiries of management and those charged with governance, and inspecting correspondence with licensing or regulatory authorities. Full compliance assurance is not required, and a representation alone is insufficient.
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