Page 33 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(CNO-SA250.100) SA 250 distinguishes the auditor’s responsibilities in relation to compliance with two
different categories of laws and regulations as follows: -
Laws having Direct Effect: Laws and regulations with immediate effects on financial statement figures, e.g., tax
and labour laws, industry specific FR issues, Sch III, II, GST, PF, POGA, POBA
Other Laws: Laws and regulations not directly influencing financial statements, yet crucial to business
operations, continuity, and penalty avoidance, e.g., license terms, solvency requirements, and environmental
regulations. Non-compliance could still materially affect financial statements. (may have material effect on FST)

(CNO-SA250.120) Auditor's responsibilities in relation to compliance with laws and regulations
1. Understanding: Understanding the legal and regulatory framework applicable to the entity and its operating
industry.
2. Entity Compliance: Assessing how the entity complies with the applicable legal and regulatory framework.
3A. Laws having Direct Effect: The auditor is responsible for obtaining appropriate audit evidence to ensure
compliance with laws and regulations directly affecting material amounts and disclosures in financial statements.
3B. Other Laws: For laws and regulations that indirectly affect the financial statements but are essential to the
business operations, the auditor's duty is to perform specified audit procedures to identify any non-compliance
that could materially affect the financial statements.
4A. Compliance: Obtaining sufficient and appropriate audit evidence regarding the entity's compliance with
laws and regulations that directly affect material amounts and disclosures in the financial statements. These laws
could include those related to the form and content of financial statements or industry-specific financial
reporting issues.
4B. Non Compliance: The auditor should inquire about compliance with laws and regulations from both
management and, if applicable, those charged with governance. As part of the audit procedures, the auditor
should inspect any correspondence with regulatory authorities to identify instances of non-compliance that could
materially affect financial statements.
5A. Alertness: Throughout the audit, the auditor must remain alert to any signs of non-compliance or suspected
non-compliance with laws and regulations that may arise from other audit procedures conducted for the purpose
of forming an opinion on the financial statements. This requires the auditor to maintain professional skepticism.
5B. Professional Skepticism: Auditors should uphold professional skepticism throughout the audit due to the
multitude of laws and regulations that could affect the entity.
6. Laws affecting Operations: The auditor must pay special attention to laws and regulations that have a
fundamental effect on the entity's operations, as non-compliance might cause the entity to cease operations or
question its continuity as a going concern. Many laws relating to operating aspects typically don't affect financial
statements.
7. Written Representations: The auditor should request written confirmations from management and, where
appropriate, those charged with governance, ensuring all known instances of non-compliance have been
disclosed to the auditor for consideration in the financial statements.

(CNO-SA250.140) Audit Procedures when Non-Compliance is Identified or Suspected
Understand the nature and its circumstances.: If the auditor discovers potential non-compliance with
regulations, they should understand the nature of the act and its circumstances.
Possible impact on FST: The auditor needs to gather more information to assess the possible impact on the
financial statements.
Discussion: Suspected non-compliance should be discussed with management and, if necessary, TCWG. If they
don't provide satisfactory compliance evidence and the issue could materially affect financial statements, the
auditor should contemplate seeking legal advice.

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