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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations

Zephyr Foods, an audit client of Marlow & Co, operates in the food manufacturing sector. During planning, the audit team asks what its responsibility is regarding the company's compliance with laws and regulations under ISA 250 (Revised). Which statement correctly describes the auditor's responsibility for laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements (such as tax and pension laws)?

For laws that directly affect material amounts and disclosures, such as tax and pension legislation, the auditor must obtain sufficient appropriate audit evidence of compliance, just as for other financial statement assertions. Prevention of non-compliance rests with management and those charged with governance, not the auditor.

  1. AThe auditor must obtain sufficient appropriate audit evidence about compliance with these laws, as they are treated like other assertions in the financial statementsCorrect
  2. BThe auditor is only required to make inquiries of management and has no responsibility to test compliance
  3. CThe auditor is responsible for preventing and detecting all non-compliance with these laws
  4. DThe auditor must report all instances of non-compliance to the regulator regardless of materiality

Explanation

ISA 250 distinguishes two categories. For laws with a direct effect on material amounts and disclosures, the auditor obtains sufficient appropriate evidence of compliance. Inquiry only applies to the second category, and preventing non-compliance is management's and those charged with governance's responsibility.

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