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Interpretation and Application of International Standards on Auditing by Steven Collings

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9

ISA 250 (REDRAFTED) CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS

ISA 250 (redrafted) stipulates the auditor’s responsibility to consider laws and regulations pertinent to an audit client in an audit of their financial statements.

Some laws and regulations have a direct effect on the financial statements (for example, in the UK, the Companies Act 2006 has a direct effect on the financial statements). Other laws and regulations do not have a direct effect on the financial statements but may instead have a direct effect on how the entity conducts its business. An example of such a law could be the Health and Safety at Work Act in the UK. Other industries may operate in heavily regulated industries such as banks. [ISA250.2]

The auditor needs to consider laws and regulations pertinent to the client because a breach in such may result in fines or other consequences which may have a material effect on the financial statements.

Responsibility for ensuring that the entity complies with all laws and regulations applicable to it rests with management and those charged with governance. The auditor’s responsibility is to identify any non-compliance of laws and regulations which may result in material misstatement within the financial statements. The auditor does not have a responsibility to detect non-compliance with laws and regulations, and whether an act constitutes non-compliance is a matter for a court of law to determine. [ISA250.3]

In recognition that ...

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