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The following question is from BPP F8 MCQs.
In accordance with ISA 250 Consideraton of laws and regulations in an audit of financial statements what are the responsibilities of the external auditor?
A) To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have both a direct and indirect effect on the financial statements
B) To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have a direct effect on the financial statement only
C) To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have an indirect effect on the financial statements only
D) To prevent and detch all non-compliance with laws and regulations which affect the business.BPP says ‘The correct answer is D’
I think it is a typing error.The following is what they explained.
ISA 250 distinguishes between laws and regulations which have a direct effect and those which have an indirect effect on the financial statements. The auditor must undertake specified audit precedures to help identify non-compliance with lasws and regulations that may have a material effect on the financial statements.Help me, Sir!
S10 of ISA 250 states:
The objectives of the auditor are:
(a)
To obtain sufficient appropriate audit evidence regarding compliancewith the provisions of those laws and regulations generally recognized to have a direct effect on the determination of materialamounts and disclosures in the financial statements;(b)
To perform specified audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements.So, I think the correct answer is A. D can’t be right as it talks about everything affecting the business whereas audits are concerned with the FS.
hi sir
How do we identify if the non compliance will have direct effect or material effect..because accordingly the responsibility of auditor according to ISA 250 will be different..
For eg, a question states the possibility of the company not complying with employment regulations..will this imapct directly or indirectly or materiallyThanks
Not accounting properly for tax, such as VAT, will have a direct effect: the amounts in the FS are wrong.
Not complying with a law that might then mean that the company is fined has an indirect effect.
See this article:
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