- August 29, 2022 at 9:17 am #664578MufadhalParticipant
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- 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.
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
You don’t say where this question comes from.
On page 114 of our notes:
… 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 #664586MufadhalParticipant
- Topics: 6
- Replies: 6
The question comes from BPP practice & Revision Kit 2022-2023, Question 128.August 29, 2022 at 12:31 pm #664587
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
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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