Page 31 - CA Final PARAM Digital Book.

• Sales commissions or Agent’s fees that appear excessive in relation to those ordinarily paid
by the entity or in its industry or to the services actually received. (Non-compliance of IRDA
Regulations etc.)
• Unusual Transactions with companies registered in tax havens. (Non-Compliance of Income
Tax Act)
• Payments without proper Exchange control documentation. (Non-Compliance of FEMA)

➢ Post Non-Compliance Matters
Investigations→ Unusual Legal Fees→Fails to provide audit trail→Adverse Media
Comment
• Investigations by regulatory organisations and government departments or payment of
fines or penalties.
• Unusual payments towards legal and retainer ship fees.
• Existence of an information system which fails, whether by design or by accident, to
provide an adequate audit trail or sufficient evidence.
• Adverse media comment.

Non-Compliance Old Course -(N12E, M16R, N16M, PM17, M18R, M20M, M21M,
QNO
23.000 TITANIUM CNO - SA250.140 M22R)
New Course – (SM23)
While verifying the employee records in a company, it was found that a major portion of the labour
employed was child labour. On questioning the management, the auditor was told that it was outside his
scope of the financial audit to look into the compliance with other laws.
OR
CA. Young has been appointed as an auditor of Rama Ltd., a textile entity. While going through the
employee records of the company, CA. Young identified that most of the labourers employed are of the
age between 11-12 years. On enquiring the same, the management argues that there is no such
foundation with regard to employment of such lower age children and contends that it is out of the scope
of audit as well to check such compliance. Comment in the context of relevant standard on auditing

whether the contention of management is tenable.
OR
"FAS Insurance Brokers Limited is a leading online insurance intermediary. During the year, Director
General of GST Intelligence (DGGI) has issued notice to the company for allegedly creating fictitious
invoices for “marketing and sales services” amounting to ` 50 crores in favour of non-life insurance
companies. The premises of company were also searched during the year by DGGI officials. The matter
was also informed to IRDAI by DGGI for violation of norms and regulations in this regard. Does above
situation has any bearing on your responsibilities as statutory auditor of the company? Outline briefly in
context of possible non-compliance with laws by the company."
Answer Part I -- Relevant Standards & Laws
▪ SA 250 “Consideration of Laws and Regulations in an Audit of Financial Statements”,
Part II -- Requirements of Relevant Standards & Laws
➢ Auditor should obtain S&A evidence regarding law having direct effect including
tax & labour laws
Compliance with Other Laws: As per SA 250, “Consideration of Laws and Regulations in an Audit of
Financial Statements”, the auditor shall obtain sufficient appropriate audit evidence regarding
compliance with the provisions of those laws and regulations generally recognised to have a direct
effect on the determination of material amounts and disclosures in the financial statements
including tax and labour laws.

➢ Non-Compliance may result in fines, litigations or other consequences
Further, non-compliance with other laws and regulations may result in fines, litigation or other
consequences for the entity, the costs of which may need to be provided for in the financial
statements but are not considered to have a direct effect on the financial statements.

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