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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

While auditing Dunmore Plc, the auditor becomes aware of a possible instance of non-compliance with a law that has a direct effect on the financial statements, namely a tax law breach. Under ISA 250 (Revised), which statement best describes the auditor's responsibility?

The auditor must obtain sufficient appropriate evidence of compliance with laws that directly affect material amounts and disclosures in the financial statements, such as tax laws. The auditor is not responsible for preventing non-compliance or for testing every law, because that rests with management and those charged with governance.

  1. AThe auditor must prevent all non-compliance with laws and regulations by the entity
  2. BThe auditor obtains sufficient appropriate evidence on compliance with laws that have a direct effect on material amounts and disclosures in the financial statementsCorrect
  3. CThe auditor has no responsibility for laws and regulations of any kind
  4. DThe auditor must test compliance with every law applicable to the entity's business

Explanation

ISA 250 requires the auditor to obtain sufficient appropriate evidence about compliance with laws generally recognised to have a direct effect on material amounts and disclosures, such as tax and pension laws. For other laws, the auditor performs specified procedures to identify non-compliance that may have a material effect. Responsibility for compliance and prevention lies with management and those charged with governance, and the auditor is not required to test every law.

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