Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
Non-compliance by the entity with laws and regulations could result in a material misstatement of the
financial statements.
The responsibility for the prevention and detection of non-compliance with laws and regulations rests with
management and those charged with governance. Management actions <strong>to</strong> address these risks could include:
• Maintaining a register of significant laws, and a record of any complaints received;
• Moni<strong>to</strong>ring legal requirements and designing procedures/internal controls <strong>to</strong> ensure compliance with
these requirements;
• Engaging legal advisors <strong>to</strong> assist in moni<strong>to</strong>ring legal requirements; and
• Developing, publicizing, implementing, and following a code of conduct.
When the audi<strong>to</strong>r detects instances of non-compliance, the impact on the financial statements and other
aspects of the audit (such as the integrity of management/employees) will need <strong>to</strong> be considered.
Risk Assessment
Paragraph #
Relevant Extracts from ISAs
250.12 As part of obtaining an understanding of the entity and its environment in accordance with
ISA 315, the audi<strong>to</strong>r shall obtain a general understanding of:
(a) The legal and regula<strong>to</strong>ry framework applicable <strong>to</strong> the entity and the industry or sec<strong>to</strong>r in
which the entity operates; and
(b) How the entity is complying with that framework. (Ref: Para. A7)
250.14 The audi<strong>to</strong>r shall perform the following audit procedures <strong>to</strong> help identify instances of noncompliance
with other laws and regulations that may have a material effect on the financial
statements: (Ref: Para. A9-A10)
(a) Inquiring of management and, where appropriate, those charged with governance, as <strong>to</strong>
whether the entity is in compliance with such laws and regulations; and
(b) Inspecting correspondence, if any, with the relevant licensing or regula<strong>to</strong>ry authorities.
Risk assessment procedures involve obtaining a general understanding of the legal and regula<strong>to</strong>ry framework
and how the entity complies with that framework. This general understanding could include the matters set
out below.
Exhibit 15.2-2
Address
Identifying Laws
and Regulations
Relevant <strong>to</strong>
the Financial
Statements
Description
What laws and regulations address:
• The form and content of financial statements?
• Industry-specific financial reporting issues?
• Accounting for transactions under government contracts?
• The accrual or recognition of expenses for income tax or pension costs?