ACCA Strategic Professional · Advanced Audit and Assurance (International) · Planning, materiality and assessing the risk of material misstatement
Karim & Co is planning the audit of Orbis Pharma, which operates under a strict licensing regime. Non-compliance could lead to withdrawal of its licence. Under ISA 250 (Revised), what is the auditor's responsibility at the planning stage for compliance with laws and regulations?
The auditor obtains a general understanding of the applicable legal and regulatory framework and how the entity complies, and performs specified procedures such as enquiry and reviewing regulator correspondence. The auditor is not required to detect all non-compliance, and cannot simply wait for management to report breaches.
- APerform audit procedures to identify non-compliance with all laws and regulations that apply to the entity
- BObtain a general understanding of the legal and regulatory framework and how the entity complies, and perform specified procedures to help identify non-compliance that may have a material effect on the financial statementsCorrect
- CTake no action unless management reports a breach, because compliance is solely management's responsibility
- DObtain a legal opinion on compliance with every licensing condition before accepting the engagement
Explanation
ISA 250 requires a general understanding of the framework and of how the entity complies. It also requires specified procedures such as enquiry and inspection of correspondence with regulators to identify non-compliance affecting the financial statements. The first option is wrong because the auditor is not required to detect all non-compliance, only that with a direct or material effect.
Did you get it right without looking?
One question tells you little. A timed set on Planning, materiality and assessing the risk of material misstatement shows your real accuracy, how long you take and where you lose marks.
More Planning, materiality and assessing the risk of material misstatement questions
- Kestrel plc's auditor is planning the audit of revenue. Management bonuses depend heavily on reported revenue, and the sales director has ov…
- Delta Retail plc has a stable profit before tax of $4.0m, revenue of $80m and total assets of $50m. The audit manager uses 5% of profit befo…
- Mistral Ltd is a long-standing audit client. The engagement partner wants to reduce time spent on planning by having the team reuse last yea…
- While assessing risk at Brightmoor Retail, the audit senior notes that the company's year-end inventory is held in 40 stores, valued using a…
- Harbour Ltd, a manufacturing company, is audited by Keel & Co. At the planning stage the audit team calculates overall materiality as 1% of …
- Early in the planning of Penrose Foods Ltd, the audit team learns the company is rapidly expanding into a new overseas market and has recent…