Field Work Laws and Regulations

Field Work Laws and Regulations This is one of a series of mini – modules designed to give the auditor guidance in the audit of specific sections. This is one of a series of mini – modules designed to give the auditor guidance in the audit of specific sections. These modules are aimed at SIC and OSIC staff. These modules are aimed at SIC and OSIC staff. In the case of this audit section, it is probably most practical for the OSIC to deal with it personally, unless the section is to be split between several auditors (see question 8 below). In the case of this audit section, it is probably most practical for the OSIC to deal with it personally, unless the section is to be split between several auditors (see question 8 below). The course refers to the current ISA 250 and also the Clarity Version. The latter becomes effective for audits of periods beginning on or after 15 December The course refers to the current ISA 250 and also the Clarity Version. The latter becomes effective for audits of periods beginning on or after 15 December 2009.

The audit programme MSCIS 17 MSCIS 17 MSCIS 17 MSCIS 17 Pro Audit Pro Audit Tests Tests Standard tests Standard tests

ISA (2008 IAASB Handbook) When designing and performing audit procedures and in evaluating and reporting the results thereof, the auditor should recognize that noncompliance by the entity with laws and regulations may materially affect the financial statements. However, an audit cannot be expected to detect noncompliance with all laws and regulations. When designing and performing audit procedures and in evaluating and reporting the results thereof, the auditor should recognize that noncompliance by the entity with laws and regulations may materially affect the financial statements. However, an audit cannot be expected to detect noncompliance with all laws and regulations.

ISA 250 (Clarity Version) ISA Non-compliance with laws and regulations may result in fines, litigation or other consequences for the entity that may have a material effect on the financial statements. ISA Non-compliance with laws and regulations may result in fines, litigation or other consequences for the entity that may have a material effect on the financial statements. ISA The requirements in this ISA are designed to assist the auditor in identifying material misstatement of the financial statements due to non-compliance with laws and regulations. However, the auditor is not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. ISA The requirements in this ISA are designed to assist the auditor in identifying material misstatement of the financial statements due to non-compliance with laws and regulations. However, the auditor is not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

The audit programme 1. Obtain or prepare schedules setting out details of the main laws and regulations governing the Company’s activities. File at E6. (N.B. In Pro Audit this is section D) Sources of information include Sources of information include Last year’s file Last year’s file Experience of businesses in the same industry Experience of businesses in the same industry Experience of other businesses generally (for non-industry specific issues, e.g. labour laws) Experience of other businesses generally (for non-industry specific issues, e.g. labour laws) Management Management Legal advisors – a letter to solicitors should be sent as standard practice. (Client staff, client outsourced, Moore Stephens – note that higher quality audit evidence is generally from third parties or generated by the auditor; in this case there is a risk that such advisors may not have access to all of the facts necessary to provide a complete schedule.). Legal advisors – a letter to solicitors should be sent as standard practice. (Client staff, client outsourced, Moore Stephens – note that higher quality audit evidence is generally from third parties or generated by the auditor; in this case there is a risk that such advisors may not have access to all of the facts necessary to provide a complete schedule.).

Auditor’s knowledge of laws (2008 Handbook) ISA The auditor should obtain sufficient appropriate audit evidence about compliance with those laws and regulations generally recognized by the auditor to have an effect on the determination of material amounts and disclosures in financial statements. The auditor should have a sufficient understanding of these laws and regulations in order to consider them when auditing the assertions related to the determination of the amounts to be recorded and the disclosures to be made. ISA The auditor should obtain sufficient appropriate audit evidence about compliance with those laws and regulations generally recognized by the auditor to have an effect on the determination of material amounts and disclosures in financial statements. The auditor should have a sufficient understanding of these laws and regulations in order to consider them when auditing the assertions related to the determination of the amounts to be recorded and the disclosures to be made. ISA clarifies that this means legislation (whether general or industry specific) that relates to accounting for transactions. ISA clarifies that this means legislation (whether general or industry specific) that relates to accounting for transactions. Within the CIS, most businesses are not required to report under IFRS and there are no such legal requirements. Within the CIS, most businesses are not required to report under IFRS and there are no such legal requirements.

Auditor’s knowledge of laws (Clarity Version) ISA The auditor shall obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements. ISA The auditor shall obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements.

The audit programme 2. Obtain or prepare schedules setting out details of any licenses or similar permissions that the Company requires in order to operate its business. File at E6/1. (Pro Audit – section D) Sources of information include Sources of information include Last year’s file Last year’s file Experience of businesses in the same industry Experience of businesses in the same industry Legal advisors (same comments apply as for previous slide) Legal advisors (same comments apply as for previous slide) Management Management

The audit programme 3. Prepare notes setting out the systems the Company has in place to ensure that it complies with laws and regulations applicable to it. File at Е7. (Pro Audit section D) These should be recorded in the same way as other system notes. These should be recorded in the same way as other system notes. Some clients, particularly smaller ones, may have no formal systems. We should consider whether there are any implications to the risk assessment for the audit as a whole and for individual assertions in other audit areas, if this is the case. Some clients, particularly smaller ones, may have no formal systems. We should consider whether there are any implications to the risk assessment for the audit as a whole and for individual assertions in other audit areas, if this is the case.

The audit programme 4. Carry out walk through tests to confirm the accuracy of the systems notes produced. 5. Inspect correspondence with relevant licensing or regulatory authorities. (Pro Audit q 6) If there is no correspondence, for any such authority, a note should be made of this fact. If there is no correspondence, for any such authority, a note should be made of this fact. This test is a specific requirement of ISA 250 and should not be marked N/A. This test is a specific requirement of ISA 250 and should not be marked N/A.

The audit programme 6. (7) Obtain copies of all necessary licenses and ensure that these are up to date and valid. Place list of all licenses and copies you feel necessary in the file. Bear in mind that changes in legislation or in client activities may result in changes to the client’s licensing requirements. Bear in mind that changes in legislation or in client activities may result in changes to the client’s licensing requirements. It is generally safest to copy all current licenses for the file. It is generally safest to copy all current licenses for the file.

The audit programme 7. (8) Where licenses have expired or will expire within the foreseeable future, enquire as to plans regarding renewal. Assess the realism of these plans. Bear in mind that some licenses may not require renewal (either due to legislative changes or changes in the client’s activities). Bear in mind that some licenses may not require renewal (either due to legislative changes or changes in the client’s activities). Consider discussing renewal with legal advisors to assess how realistic it is. Consider discussing renewal with legal advisors to assess how realistic it is.

The audit programme 8. (9) Review other file sections to identify any potential breaches of laws and regulations. The need to review the rest of the file is the main reason why this section is best performed by the OSIC. The need to review the rest of the file is the main reason why this section is best performed by the OSIC. The sections on provisions and contingencies are particularly relevant, but any section can potentially provide evidence of such a breach. The sections on provisions and contingencies are particularly relevant, but any section can potentially provide evidence of such a breach. Possible indicators of non-compliance are shown on page 3 of the audit programme and will not be reproduced here. You should review this before continuing. Possible indicators of non-compliance are shown on page 3 of the audit programme and will not be reproduced here. You should review this before continuing.

The audit programme 9. (10) Enquire of directors as to whether they are on notice of any possible instances of non-compliance with laws or regulations in any relevant jurisdiction. 10. (11) Obtain written confirmation from the directors that they have disclosed all those events of which they are aware which involve possible non-compliance, together with any actual or contingent consequences which may arise. This will form part of the disclosure in the letter of representation. This will form part of the disclosure in the letter of representation.

The audit programme 11. (12) Discuss the legal and regulatory framework with auditors of subsidiaries in other countries. Enquire as to any potential breaches of laws or regulations. Discuss licensing. This will be irrelevant if there are no subsidiaries/ branches in other jurisdictions being audited by other auditors. This will be irrelevant if there are no subsidiaries/ branches in other jurisdictions being audited by other auditors. Bear in mind that there may be legislative or regulatory differences between different regions of one country. Bear in mind that there may be legislative or regulatory differences between different regions of one country.

The audit programme 12. (13) Consider and draw to the attention of the Audit Controller the implications of any significant matters identified. In particular consider possibly implications for going concern and contingencies. This should be done through the section completion memorandum. This should be done through the section completion memorandum. If an issue may affect the audit as a whole, you should also discuss it as soon as possible. If an issue may affect the audit as a whole, you should also discuss it as soon as possible.

ISA In the absence of audit evidence to the contrary, the auditor is entitled to assume the entity is in compliance with these laws and regulations. (2008 Handbook) In the absence of audit evidence to the contrary, the auditor is entitled to assume the entity is in compliance with these laws and regulations. (2008 Handbook) Clarity version, paragraph 17 - In the absence of identified or suspected non-compliance, the auditor is not required to perform audit procedures regarding the entity’s compliance with laws and regulations, other than those set out (in the standard audit programme). Clarity version, paragraph 17 - In the absence of identified or suspected non-compliance, the auditor is not required to perform audit procedures regarding the entity’s compliance with laws and regulations, other than those set out (in the standard audit programme).

The audit programme Questions 13 to 15 (MSCIS 17 – Non- Compliance Indications checklist) should only be completed if there is evidence of possible non-compliance. These questions provide reasonably comprehensive guidance in themselves. Questions 13 to 15 (MSCIS 17 – Non- Compliance Indications checklist) should only be completed if there is evidence of possible non-compliance. These questions provide reasonably comprehensive guidance in themselves. Questions (14-16) and sign off; see the main “Field Work” module Questions (14-16) and sign off; see the main “Field Work” module