ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations
Zenith Foods Ltd is audited by Marlow & Co. Under ISA 250 (Revised), the auditor is planning procedures for the audit of Zenith's financial statements. Which of the following describes the auditor's responsibility for laws and regulations that have an indirect effect on the financial statements, such as health and safety or environmental permits?
For laws with only an indirect effect on the financial statements, the auditor performs limited specified procedures, mainly enquiring of management and those charged with governance and inspecting correspondence with regulators, to help identify non-compliance. Full compliance testing is required only for laws with a direct effect on amounts and disclosures.
- APerform specified procedures to help identify instances of non-compliance that may have a material effect, such as enquiring of management and inspecting correspondence with regulatorsCorrect
- BObtain sufficient appropriate evidence of compliance with every such law, as non-compliance could harm the entity
- CTake no action unless management or those charged with governance bring a breach to the auditor's attention
- DTest compliance only where the entity is listed or operates in a regulated sector
Explanation
For laws with an indirect effect, ISA 250 (Revised) limits the auditor to specified procedures: enquiring of management and those charged with governance about compliance, and inspecting correspondence with licensing or regulatory authorities. The auditor is not required to obtain evidence of compliance with every law, which is why the second option is wrong. The auditor is not purely passive either.
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