ACCA AAA · Chapter 6
Responding to NOCLAR
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Audit consequence depends on effects and evidence
NOCLAR
- An actual or suspected breach of applicable law or regulation
- Includes acts or omissions by the entity or people acting for it
Management and TCWG
- Management ensures compliance; TCWG provides oversight
Auditor
- Obtain reasonable assurance on material misstatement
- Cannot prevent or detect every breach; concealment raises risk
Direct versus other laws
- Direct effect on amounts/disclosures: obtain evidence of compliance
- Other laws: procedures to identify breaches with material effects
Understand
- Legal and regulatory framework and how the entity complies
Direct-effect laws
- Obtain sufficient appropriate evidence of compliance
Other laws
- Enquire of management and, where appropriate, TCWG
- Inspect correspondence with licensing and regulatory authorities
- Remain alert to breaches found through other audit work
Representations and next step
- Obtain written representations on known or suspected breaches
- If none identified, no further procedures beyond those above
Establish the facts
- Understand nature and circumstances; evaluate possible effects
- Seek legal advice where application of law is unclear
Reassess risk and evidence
- Fraud, further breaches, affected balances and disclosures
- Fines, provisions, contingent liabilities, impairment and going concern
Revise audit work
- Test similar activities and controls; extend procedures
- Reassess management integrity and representations; consider experts
Exam application
- Specify evidence, its source and the financial statement effect
- Consider engagement continuance where necessary
Within the entity
- Discuss with appropriate management and TCWG
- Communicate to TCWG unless clearly inconsequential
- Communicate suspected intentional, material breaches promptly
- If implicated, escalate to a higher authority if one exists
External authority
- Comply with legal duties; exceptional public-interest disclosure
- may be permitted under ethical provisions; seek legal advice
Auditor’s report
- Appropriate treatment and evidence: unmodified may be possible
- Material misstatement: qualified/adverse if pervasive
- Evidence limitation: qualified/disclaimer if pervasive
Going concern
- Adequate material-uncertainty disclosure: separate section
- Inadequate disclosure: qualified/adverse if pervasive
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