ISA 250

Question 1

Give examples of heavily regulated industry

Answer 1

• Banks
• Insurance

Question 2

What are the two categories of laws and regulations?

Answer 2

• Those which directly affect F/s (tax laws, pension laws, money laundering)
• Those which indirectly affect F/s (licensing requirements, environmental regulations)

Question 3

What can be some consequences of NOCLAR?

Answer 3

• Fines
• Litigations
• Cancellation of license
• Etc.

Question 4

What should auditor do as part of understanding of entity in accordance with IAS 315?

Answer 4

As part of understanding of entity, auditor shall also obtain understanding of:

• Laws applicable to entity
• How entity is complying with laws

Question 5

If laws directly affect F/s, what shall auditor do?

Answer 5

Obtain sufficient, appropriate evidence regarding compliance

Question 6

If laws do not directly affect F/s, what shall auditor do?

Answer 6

• Inquire management whether entity is complying
• Inspect correspondence with relevant licensing / regulatory authorities

Question 7

If NOCLAR is identified or suspected, what shall auditor do?

Answer 7

• Obtain understanding of nature of act
• Obtain further information to evaluate the possible effect on F/s
• Discuss the matter with TCWG (unless prohibited by law).
• If TCWG do not provide sufficient information regarding compliance, auditor shall evaluate effect on auditor’s opinion, effect on other aspects of audit (e.g. risk assessment, reliability of representations), obtain legal advice

Question 8

Describe communication of identified / suspected NOCLAR

Answer 8

• Communicate with TCWG unless clearly inconsequential
• If NOCLAR appears to be intentional or material, communicate as soon as possible
• If management or TCWG is involved in NOCLAR, communicate to higher level of authority (audit committee / supervisory board)
• If no higher authority, obtain legal advice
• Determine whether reporting NOCLAR to appropriate authority outside the entity is required or appropriate. Confidentiality would not be breached

Question 9

Describe effect on auditor’s report of identified / suspected NOCLAR

Answer 9

• If effect of NOCLAR not reflected in F/s, qualified opinion if effect is material or adverse opinion if effect is pervasive
• If auditor is unable to determine whether NOCLAR has occurred, auditor shall evaluate effect on auditor’s opinion

Question 10

Should auditor obtain written representation? If so, what?

Answer 10

Yes, that management has considered all known non-compliances in preparation of F/s and disclosed them to auditor

Question 11

What shall auditor document with respect to NOCLAR?

Answer 11

• Identified or suspected non-compliance
• Procedures performed, judgements made, conclusions reached
• Discussion with management and TCWG, and how they responded to the matter

Question 12

In exam, discuss:

Answer 12

• Impact on F/s
• Communication
• Impact on audit
• Impact on audit report

Question 13

ISA 250, what is the flow of course of action?

Answer 13

• Understanding Law applicable to entity
• Evidence vs inquiry / inspection
• Written representation
• Communication of NOCLAR to TCWG
• Communication of NOCLAR to higher authority
• Legal advice
• Communication of NOCLAR to external authorities?
• Whether to withdraw due to integrity
• Effect on F/s
• Effect on auditor’s report