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Do employment regulations have a direct or indirect effect on the financial statements ma’am?
It depends on which aspect of employment regulations. For a direct example, in the UK, employees have a right to holiday pay. This means that subject to specific provisions in their employment contracts, there should be a holiday accrual for outstanding leave entitlement.
That said, I think the majority would have an indirect effect. E.g. if employees are unfairly dismissed or injured in the workplace, there would be a legal process, which employees may choose not to embark on, before the company would be liable to penalties, etc.
Thank you, so mostly the auditor has limited responsibility in identifying evidence of non compliance with the relevant regulation that may have a material effect on the financial statements?
For non-compliance (NOCLAR) with regs etc that have a direct bearing on the FS, the auditor might use a checklist to make sure that nothing has been overlooked.
Many ISA 250 requirements have parallels with ISA 240, so if the auditor identifies risks of NOCLAR, there must be an appropriate auditor’s response.
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