2 Compliance with Laws and Regulations. Audit standards distinguish auditors\' r

Question

2 Compliance with Laws and Regulations. Audit standards distinguish auditors' responsibility for planning procedures for detecting noncompliance with laws and regulations having a direct effect on financial statements versus planning procedures for detecting noncompliance with laws and regulations that do not have a direct effect on financial statements. Required . What are the requirements for auditors to plan procedures to detect direct-effect compliance versus indirect-effect compliance? For each of the following instances of noncompliance, explain why they are either direct-effect (D) or indirect-effect (I) noncompliance: .A manufacturer inflates expenses on its corporate tax return. .A retailer pays men more than women for performing the same job. .A coal mining company fails to place proper ventilation in its mines. A military contractor inflates the overhead applied to a combat vehicle An insurance company fails to maintain required reserves for losses .An exporter pays a bri buy its products. .A company backdates its executive stock options to lower the exercise price. . A company fails to fund its pension plan in accordance with ERISA 819 PM Dw

Explanation / Answer

Here is the different requirements for detect direct effect compliance and indirect effect compliance

Auditors required to obtain sufficient appropriate audit evidence regarding material amounts and disclosures in the financial statements that are determine by the provisions of those rules and regulations in direct effect compliance

Auditor’s requirements are limited to performing specified audit procedures that may identify noncompliance with those laws and regulations that may have a material effect on the financial statements in indirect effect compliance

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