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in the BPP mock test 3 i think its march/june 2019 question
theres a non compliance of laws and regulations. can i check if it in the auditors scope of work to investigate a possible breach where the entity may be using chemicals on farms. If they were to take further actions and the matter outside the management, they could be doing considerable damage to the company and if it transpires that the claims were false the auditor would be liable.
i know the auditor can speak to management etc but im trying to understand what scope the auditor is responsible for, as the management will not suddenly turn around and say oh yes we use illegal chemicals, therefore that procedure wouldn’t really make us any wiser.
I want to understand, to what extent the auditor should go with regards to such cases.
I don’t have Q/A to hand but re non-compliance (and fraud also) the auditor must have a sufficient understanding of the entity and its environment – including internal control – to identify and assess risks of material misstatement (ISA 315) in order to design responses to address those risks (ISA 330).
So the auditor must have an understanding of the laws and regulations that affect a client’s inputs/processes/outputs/operations, etc and discuss with management how it manages risks – e.g. to dispose of hazardous waste responsibly. If the auditor has no reason to doubt management’s integrity/attitude to risk management, etc, the auditor has no responsibility to detect non-compliance – only to plan and perform the audit to provide reasonable assurance that the financial statements are free from material misstatement whether due to fraud or error.
There would be risk of material misstatement if management fails to provide for penalties/disclosure contingent liabilities.See page 36 of out notes and also 37 – it is clearly spelt out that the auditor doesn’t go “running to 3rd parties to make allegations” – the auditor considers his rights and duties to report and management/TCWG would generally be given the opportunity to “come clean” and report matters to relevant regulatory bodies.
In this particular question am employee has reported that management are using illegal chemicals and that they have given £10,000 to manager who confronted them about their use of chemicals.
My train of thought is we cant prove this without an independant investigation but would this be in our scope of work
The auditor doesn’t have to “prove” anything – but nor can this information be dismissed/ignored. The auditor has professional responsibilities – ISA 250 (NOCLAR), ISA 315 … etc – so yes, the auditor is required “to do something about it”. That doesn’t mean carry out some sort of forensic investigation – but it may involve extending substantive procedures relevant to the completeness of recorded liabilities.
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