Chapter 3 Section 6: Compliance with Laws and Regulations

Question 1

Who is responsible for ensuring that the entity’s operations are conducted in accordance with laws and regulations?

Answer 1

Management

Question 2

What is the auditor’s responsibility in regards to compliance with laws and regulations?

Answer 2

To obtain a reasonable assurance that there aren’t misstatements - not to prevent noncompliance or to detect noncompliance with all laws and regulations.

Question 3

What does the auditor need to get a good understanding of?

Answer 3

Legal and regulatory framework

How they are complying with that framework

Question 4

What is the big procedural requirement regarding noncompliance?

Answer 4

Get signed management representation letter

Question 5

What is the procedure for the auditor when noncompliance is identified or suspected?

Answer 5

Discuss the matter with management at least one level above those suspected of noncompliance and maybe those charged with governance

Question 6

What do you do if there is no higher level of authority to report to?

Answer 6

Seek legal advice

Question 7

Is it the auditor’s responsibility to report to regulatory and enforcement authorities?
What’s the exception

Answer 7

No, because of the professional duty of confidentiality.

The exceptions are in response to predecessor inquiries, a court order, or if they get money from the gov’t

Question 8

Is it a GAAP or GAAS issue and what’s the opinion for the following:
Material effect on financials
Insufficient evidence
Client refusal to accept report

Answer 8

GAAP - qualified/adverse
GAAS - qualified disclaimer
GAAS - withdraw