ISAs – Summaries and Application Guide Code of Ethics

Section 360: Responding to Non-Compliance with Laws and Regulations

Such non-compliance may or may not have direct effect on financial statements. (as discussed in
ISA 250)

Introduction:
Newly added section.

Self-Interest or Intimidation threat to compliance with principles of Integrity and Professional

Behavior if CA becomes aware of non-compliance.

Objectives of Chartered Accountant if there is non-compliance:

1. To comply principles.
2. To alert management and TCWG so that they take appropriate response (e.g. investigate,
rectify consequences, deter it if not occurred yet, stop re-occurrence, disclosure to
authorities).
3. To determine whether further action is needed (e.g. withdrawal and disclosing to
authorities) in public interest.

General Requirements (i.e. Scope):

1. Non-compliance may be committed by employees, management, TCWG, client. Code does
not apply on non-compliance by other parties (e.g. non-compliance identified on due
diligence of a third party)
2. Examples of laws and regulations covered by this section.
3. Non-compliance may result in fines, penalties or wider public interest implications.
4. CA should comply local laws (e.g. if they prohibit alerting management, and require
communication to appropriate authorities).
5. This section shall not apply on:
a. Clearly inconsequential matters.
b. Personal misconduct

Responsibility of Chartered Accountant in Audit of Financial Statements:

Obtaining Understanding of the Matter:
 If CA becomes aware of information regarding non-compliance (through his procedures or
by other parties), he shall obtain understanding of the matter. For this purpose, he may
consult (on confidential basis) within Firm/Network Firm, Legal Counsel, or a professional
Body.
 If CA identifies non-compliance, he shall discuss the matter with:
o appropriate level of management (unless prohibited e.g. in money-laundering).
Appropriate level of management depends on various factors, and is atleast one
level above the individual involved.
o TCWG if management is involved.
o Internal auditors, if necessary.

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ISAs – Summaries and Application Guide Code of Ethics

Addressing the Matter:

 CA shall advise management and TCWG to take appropriate response.
 CA shall also communicate the matter to group engagement team (unless prohibited by law)
whether he is performing work on request of group auditor or as independent work e.g.
statutory audit. Group engagement partner shall consider whether matter is relevant to one
or more components. If so, he shall communicate these matters to those performing work at
components.

Determining Whether (Response is appropriate and) Further Action is Needed:

 CA shall assess whether response of management and TCWG is appropriate by considering
factors (e.g. investigate, rectify consequences, deter it if not occurred yet, stop re-
occurrence, disclosure to authorities).
 CA shall assess whether further action is needed (e.g. withdrawal, or communication with
appropriate authority) considering integrity of management/TCWG, and harm to
stakeholdres.
 If auditor withdraws, he shall communicate non-compliance to proposed auditor even if
client does not give his consent.
 If auditor considers disclosure to an authority is an appropriate course of action, he shall
make disclosure (unless prohibited by law) considering factors e.g. existence of appropriate
authority (e.g. Stock Exchange, Environmental protection agency), protection from any civil
or criminal liability, physical safegy of CA.

Imminent Breach:
If breach is imminent, CA shall still communicate to:
 management/TCWG and
 to appropriate authorities.

Documentation:
Auditor shall document matters in relation to non-compliance with laws and regulations (in
addition to ISAs).

Responsibility of Chartered Accountant in Professional Services other than Audit of

Financial Statements:
Not important.