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ISA 250 Consideration of Laws and Regulations in an Audit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › ISA 250 Consideration of Laws and Regulations in an Audit

  • This topic has 4 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
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  • August 29, 2022 at 9:17 am #664578
    Mufadhal
    Participant
    • Topics: 6
    • Replies: 6
    • ☆

    In the scenario, “a managing director is suing the company for unjust dismissal”

    and there is possibility that the company may not have complied with employment regulations.

    The questions:

    Which of following responsibility is CORRECT regarding the responsibility of auditors in relations to compliance with employment regulations?

    A. To obtain sufficient appropriate evidence regarding compliance, as they have a direct effect on the financial statement.

    B. To perform specific audit procedures to identify possible non-compliance

    The answer to this question says it is B because it has direct effect, but I thought it is quite the opposite it is correct when there is indirect effect and there for A is the answer.

    Please help me with this confusion.

    August 29, 2022 at 10:15 am #664580
    Kim Smith
    Keymaster
    • Topics: 109
    • Replies: 7386
    • ☆☆☆☆☆

    You don’t say where this question comes from.

    On page 114 of our notes:

    The auditor:
    … Is responsible for obtaining sufficient appropriate audit evidence regarding compliance with
    ‘direct’ laws and regulations;

    I would say this is a responsibility “in general”.

    However, you have a scenario here which suggests a risk of non-compliance with employment legislation – so the auditor would need to respond to that risk – with substantive procedures.

    That’s all I can suggest – what does the answer justification say?

    August 29, 2022 at 12:15 pm #664586
    Mufadhal
    Participant
    • Topics: 6
    • Replies: 6
    • ☆

    The question comes from BPP practice & Revision Kit 2022-2023, Question 128.

    August 29, 2022 at 12:31 pm #664587
    Kim Smith
    Keymaster
    • Topics: 109
    • Replies: 7386
    • ☆☆☆☆☆

    It’s possible that the correct answer has been mislabeled and it should be A rather than B – I can look in the book tomorrow and see if there’s anything else to confirm this as a typo – but that is really for BPP to confirm.

    August 30, 2022 at 10:46 am #664674
    Kim Smith
    Keymaster
    • Topics: 109
    • Replies: 7386
    • ☆☆☆☆☆

    I think the typo is that “direct” should be “indirect”:

    “For those which have aN INdirect effect on the financial statements ….”

    Employment regulations generally would be indirect.

    “Direct” means directly affecting the financial statements and include:

    o The form and content of financial statements; E.G. Companies Act 2006 provisions
    o Industry-specific financial reporting issues; E.G. for financial institutions
    o Accounting for transactions under government contracts; (you’re not expected to have any idea what this means but as well as following GAAP, government contracts are required to apply specific cost accounting principles)
    o The accrual or recognition of expenses for income tax or pension costs. E.G. Tax legislation

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