As part of AP4.3 (LO 1) your intern training at a large public accounting firm,
ID: 2334091 • Letter: A
Question
As part of AP4.3 (LO 1) your intern training at a large public accounting firm, you have been asked to conduct research about audit procedures related to client noncompliance with laws and regulations. You will report the findings of your research to the other interns in your training class. Challenging Research Noncompliance with laws and regulations Required Go to www.aicpa.org/research/standards to access the Clarified Statements on Auditing Standards. Navigate to AU-C 250 and answer the following questions: a. What might be indicators that a client has committed an illegal act? b. What are some specific procedures the auditor can use to obtain an understanding of an identified or suspected illegal act? c. In what situations might an auditor have a duty to notify external parties about a client's noncom- pliance with laws and regulations?Explanation / Answer
Answer 1.
Laws and regualtions that relate principally to operating aspect of business does not affect financial statements normally.
Non compliance involve conduct that is designed to conceal actions like collusion, fraud, deliberate failure to record transaction, or misrepresenting facts
Noncompliance with laws have a material effect on operations of entity and can cause the entity to cease operations and thus should be taken into consideration
Answer 2.
Audit Procedures When Noncompliance Is Identified or Suspected
1. If auditor becomes aware of the instance and concerned information of non compliance. The auditior should
A. Get understanding of the the nature and act of noncompliance
B. Get further information to evaluate effect on financial statements
2. The auditor should discuss the Matt with management or those responsible for governance. If they do not provide sufficient information to prove thier compliance and it might have material impact on financial statement
The auditor should get legal advice
3. If sufficient information cannot be obtained the auditor should evaluate the effect of insufficient evidence on the auditor's opinion
4. The auditor should evaluate the non compliance in respect to other audit aspects in risk assessment and reliability of written representation and take appropriate action
Answer 3.
Audior has a duty to report the noncompliance to external parties in the following scenarios:
1. In response to inquiries from an auditor to a predecessor auditor, in accordance with the requirements of section 210, Terms of
Engagement 16
2.In response to a court order
3. In compliance with requirements for companies/ entities that recieve government funding
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