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
Address
Making Inquiries
of Management
Inspecting
Correspondence
Description
• What other laws or regulations exist that may be expected <strong>to</strong> have a
fundamental effect on the operations of the entity (e.g., operating licenses,
bank covenants, environmental regulations, etc.)?
• What policies and procedures are being used for:
– Ensuring compliance with laws and regulations?
– Identifying, evaluating, and accounting for litigation claims?
• What breaches (if any) of regulations and other laws have occurred and resulted
in fines, litigation, or other consequences?
• What pending litigation or other actions exist for alleged non-compliance with
laws and regulations?
Review correspondence, reports, and other interactions with relevant licensing and
regula<strong>to</strong>ry authorities.
Risk Response
Paragraph #
Relevant Extracts from ISAs
250.13 The audi<strong>to</strong>r shall obtain sufficient appropriate audit evidence regarding compliance with the
provisions of those laws and regulations generally recognized <strong>to</strong> have a direct effect on the
determination of material amounts and disclosures in the financial statements. (Ref: Para. A8)
250.15 During the audit, the audi<strong>to</strong>r shall remain alert <strong>to</strong> the possibility that other audit procedures
applied may bring instances of non-compliance or suspected non-compliance with laws and
regulations <strong>to</strong> the audi<strong>to</strong>r’s attention. (Ref: Para. A11)
250.16 The audi<strong>to</strong>r shall request management and, where appropriate, those charged with
governance <strong>to</strong> provide written representations that all known instances of non-compliance
or suspected non-compliance with laws and regulations whose effects should be considered
when preparing financial statements have been disclosed <strong>to</strong> the audi<strong>to</strong>r. (Ref: Para. A12)
250.17 In the absence of identified or suspected non-compliance, the audi<strong>to</strong>r is not required <strong>to</strong>
perform audit procedures regarding the entity’s compliance with laws and regulations, other
than those set out in paragraphs 12-16.
The audit plan would address matters such as outlined in the following exhibit.
Exhibit 15.2-3
Address
Are There
Instances of Non-
Compliance?
Description
Audit procedures could include:
• Reading minutes and relevant documents, correspondence, etc.;
• Inquiring of management and legal counsel concerning litigation, claims, and
assessments; and
• Performing substantive tests of details of classes of transactions, account
balances or disclosures.