Non-compliance – Acts of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations. Such acts include transactions entered into by, or in the name of, the entity, or on its behalf, by those charged with governance, management or employees. Non-compliance does not include personal misconduct (unrelated to the business activities of the entity) by those charged with governance, management or employees of the entity.
The Auditor’s Consideration of Compliance with Laws and Regulations
Along with obtaining the understanding entity and its environment the auditor shall obtain an understanding of the following;
- The legal and regulatory framework applicable to the entity and the industry or sector in which the entity operates; and
- How the entity is complying with that framework.
In case of determination of material amounts and disclosures in the financial statements the auditor shall require to determine the direct effect of law and regulation. For this purpose the auditor shall require to obtain sufficient audit evidence to confirm about compliance with relevant provision of the above law and regulation.
In case of non-compliance to the law and regulation that materially affect the financial statements. The auditor shall perform the following procedures.
- For the confirmation of compliance to law and regulation by the entity the auditor shall inquire the management and those charged with governance
- The auditor shall obtain confirmation about the licensing or information from regulatory authority.
At last the auditor shall ask for written representation from management and where applicable from Those charged with Governance (TCWG).
Audit Procedures When Non-Compliance Is Identified or Suspected
If the auditor gets inform about the non-compliance with the relevant law and regulation or he suspects about non-compliance with the relevant law and regulation then the auditor shall obtain;
- 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.
This matter of non-compliance with relevant law and regulation shall be discussed by the auditor with the management and where appropriate Those charged with Governance (TCWG). If the above authority fails to provide sufficient appropriate information, then conclude that non-compliance materially affect the financial statement. In such a case the auditor will require legal advice.
Reporting of Identified or Suspected Non-Compliance
The auditor shall report the identified or suspected non-compliance to those charged with governance only if they are not involved in the management of the entity. This discussion will be made during the course of audit. If the get information the TCWG involved in the management then the matter will be discussed with audit committee or supervisory board if exist otherwise legal advice will be needed.
The auditor shall express qualified opinion or adverse opinion in his report in case of non-compliance that materially affect the financial statement.
The audit documentation shall include about the non-compliance with the relevant law and regulation This matter will be included in audit documentation by the auditor after making discussion with management and Those charged with Governance (TCWG).