Page 105 - DCOM204_AUDITING_THEORY

Unit 6: Laws and Regulations in Audit

Self Assessment Notes

State whether the following statements are true or false:
1. An audit is expected to detect non-compliance with all laws and regulations.
2. Non-compliance refers to acts of omission or commission by the entity being
audited, either intentional or unintentional, which are contrary to the prevailing laws or
regulations.
3. Consideration of laws and regulations does not apply to other assurance engagements in
which the auditor is specifically engaged to test and report separately on compliance with
specific laws or regulations.

6.2 Responsibility for Compliance with Laws and Regulations

6.2.1 Responsibility of Management for the Compliance with Laws and
Regulations

Management’s responsibility, with the oversight of those charged with governance, is to ensure
that the entity’s operations are conducted in accordance with the provisions of laws and
regulations, including compliance with the provisions of laws and regulations that determine
the reported amounts and disclosures in an entity’s financial statements. It is management’s
responsibility to ensure that the entity’s operations are conducted in accordance with laws and
regulations. The responsibility for the prevention and detection of non-compliance rests with
management.
The following policies and procedures, among others, may assist management in discharging
its responsibilities for the prevention and detection of non-compliance with laws and regulations:
1. Monitoring legal requirements and ensuring that operating procedures are designed to
meet these requirements.

2. Instituting and operating appropriate systems of internal control.
3. Developing, publicizing and following a Code of Conduct.
4. Ensuring employees are properly trained and understand the Code of Conduct.
5. Monitoring compliance with the Code of Conduct and acting appropriately to discipline
employees who fail to comply with it.
6. Establishing a legal department and/or engaging legal advisors to assist in monitoring
legal requirements.
7. Maintaining a register of significant laws with which the entity has to comply within its
particular industry and a record of complaints in respect of non-compliance.
8. In larger entities, these policies and procedures may be supplemented by assigning
responsibilities to:
(a) An internal audit function.
(b) An audit committee.

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Caution Compliance with the provisions of laws and regulations determine the reported
amounts and disclosures in an entity’s financial statements.

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