ISA 250 (Revised) — Consideration of Laws and Regulations in an Audit of Financial Statements

ISA 250 DEALS with the auditor’s responsibility to CONSIDER laws and regulations in an ‘Audit‘ of Financial Statements.

Table of Contents

ISA 250 – Introduction
- 1. Scope of this ISA
- 2. Effective Date
ISA 250 – Objectives
ISA 250 – Definition
- 1. Non-Compliance
ISA 250 – Requirements
Synopsis

ISA 250 – Introduction

1. Scope of this ISA

It does NOT apply to Other Assurance Engagements in which the auditor is specifically engaged to test and report separately on compliance with specific laws and regulations.

2. Effective Date

This ISA is EFFECTIVE for audits of financial statements for periods beginning on or after December 15, 2017.

ISA 250 – Objectives

The Objectives of the ‘Auditor’ are:

To obtain sufficient appropriate evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect;
To perform specified audit procedures to help identify instances of non-compliance with other laws and regulations that May have a Material effect; AND
To respond appropriately to identified or suspected non-compliance.

ISA 250 – Definition

1. Non-Compliance

Acts of omission or commission, intentional or unintentional committed by the entity or by those charged with governance, by Management or by other individuals working for or under the entity’s direction which are CONTRARY to the prevailing laws or regulations.

ISA 250 – Requirements

1. The Auditor’s Consideration of Compliance With Laws and Regulations

As per ISA 315, the auditor shall OBTAIN a general understanding of:

The legal and regulatory framework applicable to the entity and the industry or sector; AND
How the entity is complying with that framework.

The auditor shall OBTAIN sufficient appropriate evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a ‘direct effect’.

The auditor shall PERFORM the following audit procedures to help identify instances of non-compliance with other laws and regulations that May have a ‘Material effect’ on the Financial Statements:

Inquiring of Management and where appropriate those charged with governance; AND
Inspecting correspondence if any with the relevant licensing or regulatory authorities.

The auditor shall REMAIN ALERT to the possibility that ‘Other Audit Procedures‘ applied May bring instances of non-compliance.

The auditor shall REQUEST Management and where appropriate those charged with governance to provide WRITTEN REPRESENTATIONS.

2. Audit Procedures When Non-Compliance is Identified or Suspected

The auditor shall OBTAIN as per ISA 250:

An understanding of the nature of the act and the circumstances in which it has occurred; AND
Further information to evaluate the possible effect on the ‘Financial Statements’.

If the auditor suspects non-compliance, the auditor shall DISCUSS with the Management and where appropriate those charged with governance. If sufficient information is NOT provided, the auditor shall CONSIDER the Need to obtain legal advice.

If sufficient information cannot be obtained, the auditor shall EVALUATE the effect of the lack of sufficient appropriate evidence on the auditor’s opinion.

The auditor shall EVALUATE the Implications of identified or suspected non-compliance in relation to other aspects of the audit.

3. Communicating and Reporting Identified or Suspected Non-Compliance

3.1 Communicating Identified or Suspected Non-Compliance With Those Charged With Governance

Unless all those charged with governance are involved in the Management of the entity, the auditor shall COMMUNICATE Matters involving non-compliance other than when the Matters are clearly inconsequential.

If non-compliance appears intentional and Material, the auditor shall COMMUNICATE the Matter with those charged with governance.

If the auditor suspects that Management or those charged with governance are involved in non-compliance, the auditor shall COMMUNICATE the Matter to the next level of authority at the entity. When NO higher authority exists, the auditor shall CONSIDER the need to obtain legal advice.

3.2 Potential Implications of Identified or Suspected Non-Compliance for the Auditor’s Report

If the auditor concludes a ‘Material Effect’ and has not been adequately reflected in the Financial Statements, the auditor shall as per ISA 705 EXPRESS a Qualified Opinion or an Adverse Opinion on the Financial Statements.

If the auditor is precluded by Management or those charged with governance from obtaining sufficient appropriate audit evidence, the auditor shall EXPRESS a Qualified Opinion or Disclaim an Opinion on the basis of a limitation on the scope as per ISA 705.

If the auditor is unable to determine non-compliance, the auditor shall EVALUATE the effect on the auditor’s opinion in accordance with ISA 705.

3.3 Reporting Identified or Suspected Non-Compliance to an Appropriate Authority Outside the Entity

The auditor shall DETERMINE whether law, regulation or relevant ethical Requirements:

Require the auditor to report to an appropriate authority outside the entity; AND
Establish responsibilities under which reporting May-be appropriate in the circumstances.

4. Documentation

The auditor shall INCLUDE:

The audit procedures performed, the Significant Professional Judgments Made and the conclusions reached; AND
The discussions of Significant Matters with Management, Those Charged with Governance and Others.

Synopsis

ISA 250 ‘Consideration of Laws and Regulations in an Audit of Financial Statements‘ DEALS with the auditor’s responsibility to consider laws and regulations in an ‘Audit‘ of Financial Statements.

[200-299] General Principles and Responsibilities