Accounting and Auditing
- Accounting Ratios
- Applicability of Accounting Standards to Various Entities
- Companies (Auditor’s Report) Order, 2016
- Due Diligence Review
- Indian Accounting Standards (IND AS)
- SA – 230 : Audit Documentation
- SA – 250 : Consideration of Laws and Regulations in an Audit of Financial Statements
- SA – 260 : Communication with those charged with Governance:
- SA – 700 : Forming an Opinion and Reporting on Financial Statements (Earlier known as 'The Auditor's Report on Financial Statements')
- SA – 701 : Communicating Key Audit Matters in The Independent Auditor's Report
- Some illustrative formats of Independent Auditor’s Reports
- Standard on Quality Control (SQC) 1
- Standards on Auditing
- Tax Audit Checklist
- Useful lives to compute Depreciation [S. 123, Sch II]
SA – 250 : Consideration of Laws and Regulations in an Audit of Financial Statements
Scope: This Standard on Auditing (SA) deals with the auditor’s responsibility to consider laws and regulations while performing an audit of financial statements and not compliance with specific laws or regulations.
Effect of Laws & Regulations
The effect on financial statements depends on the fact that whether they are directly or indirectly related to the operational business. Non-compliance of the same shall attract fines, litigations or other consequences.
Responsibility of Management
The management must ensure that entity’s operations are conducted in accordance and with compliance of the various provisions of laws and regulations that determine the reported amounts and disclosures. The management should:
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Monitor legal requirements |
Ensure employees are properly trained |
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Institute and operate appropriate systems of internal controls |
Monitor compliance with code of conduct |
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Develop, publish and follow a code of conduct |
Engage legal advisors |
In larger companies the policies and procedures are assigned to:
- An Internal Audit function, An Audit Committee, Compliance function.
Responsibility of the Auditor
This SA is designed to assist the auditor in identifying material misstatement of the financial statements. He is responsible for obtaining a reasonable assurance that the financial statements as a whole are free from any material misstatement. However, due to inherent limitations of audit there exists an unavoidable risk.
Effective date: Audit of Financial Statements for period beginning on or after 1st April, 2009.
Objectives: The objectives of an auditor are:—
- To obtain sufficient audit evidence regarding compliance with provisions of laws and regulations,
- To perform audit procedures to help identify areas to non-compliance,
- To respond appropriately to non-compliance or suspected compliance,
- To maintain an attitude of professional skepticism.
Definition of Non-compliance
Acts of omission or commission by the entity either intentional or unintentional which are contrary in nature other than personal misconduct.
Duties of Auditor
- Obtain knowledge about legal and regulatory framework
- Know-how the entity is complying with the same
- Obtain Audit evidence w.r.t. compliance
- Conduct audit procedures to identity non-compliance
- Ensure compliance by management
- Inspect correspondence, if any, with authorities
- Remain alert to suspection, if any
- Obtain written representations from management where necessary.
Audit Procedures when Non-compliance is Identified or Suspected
Firstly understand the nature of act and circumstances and then evaluate the possible effects. Then if there is any suspicion, discuss the same with those charged with governance and if sufficient information is not obtained then the auditor can seek legal advice.
Reporting Non-compliance to Regulatory and Enforcement Authorities
The auditor’s duty of client confidentiality may be overridden by statute and law as under the present legal framework, the auditor’s duty is to report the suspected/confirmed occurrence of non-compliance with laws to the regulatory authorities. Then if there is any misstatement, discuss the same with those charged with governance and if sufficient information is not obtained then the auditor can seek legal advice.