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AAA – BY KASHIF KAMRAN

LECTURE 6- BLOCK 1
Topic 5: Auditor responsibilities for laws and regulations (ISA-250)
Objective/ learning outcome
1. Split of responsibilities between the management and the auditor ( laws and regulator)
2. Auditor responsibilities when a non-compliance with laws is detected (Read the article by the
examining team- Responding to NOCLAR- [ non-compliance with laws and regulation] )
3. Past paper practice
Split of responsibilities
Management- is responsible to implement a robust or a sound system of internal controls in order to prevent
and detect any non-compliances with laws and regulation. (E.g. NEDs, Audit committee, internal audit
department, policies and procedures, training and development etc.)
Auditor – should be alert (exercise professional skepticism) throughout the process of audit for any instance of
non-compliances with laws and regulations and if any instance is identified (NOCLAR) should take appropriate
actions. (Article- Responding to NOCLAR)
What is NOCLAR?
NOCLAR- Non-compliance with laws and regulations

 Omission or commission
o Omission- means that the laws is not followed
o Commission – means that the laws is followed by not properly or completely
 Intentional or un-intentional
o Intentional- deliberate (serious)/ with purpose
o Un-intentional – mistake(Error)
Types of laws
Background-

 At the stage of planning- the auditor gathers knowledge of business (KOB) including knowledge about
relevant laws and regulations
 Knowledge about laws at planning stage helps auditor to identify any instance of NOCLAR during audit
Types of laws:
1. The ones which have direct impact on the financial statement (e.g. IAS/IFRS etc.)
2. The ones which are fundamental to the operating aspect of the client business and can result in penalties
and going concern issues if not adhered
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Auditor response to NOCLAR (Read the article)

1. Obtain an understanding of:
a. The nature of act (omission or commission)
b. The circumstance in which it occurred (intentional or un-intentional)
c. The effect on FS if any
2. Discuss with:
a. Management (middle management / CEO)- first
b. Those charged with governance (Audit committee/ BODs)- second (if needed)
c. Seek a legal advice in certain circumstance ( correspond with a legal expert for discussing the
likely implication of the NOCLAR on FS or on the going concern of the company pertain to laws in
relation to operating aspect of client business)
3. Evaluate the implication of NOCLAR on:
a. Other aspects of audit
i. Reassess
1. Client integrity – the auditor should rethink or reassess the client integrity
2. the sample size for the rest of the auditor
3. the materiality level
4. The future of auditor-client relationship
4. Evaluate the impact on: (unresolved NOCLAR)
a. Audit opinion- if management and TCWG failed to rectify the NOCLAR
5. Determine whether to report NOCLAR to a: (un-resolved)
a. Regulator (consider the national laws and national requirement)
6. Documentation – the working paper in a proper manner for NOCLAR to ensure auditor has sufficient
appropriate audit evidence that auditor has fulfilled the responsibilities for NOCLAR.

Summary

Auditor response to NOCLAR

1. Understand
a. Omission/commission
b. Deliberate/ un-intentional
2. Discuss
a. Management
b. TCWG
c. Legal expert
3. Implication
a. FS
b. Opinion
c. Other aspects of audit
4. Regulator
5. Documentation
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Past papers
Dec 13 / Jun 15
Dec 13 Q3b- 6 marks

In relation to management’s decision not to report the accident to the National Coal Mining Authority,
discuss Burton & Co’s responsibilities and recommend the actions which should be taken by the
firm. (6 marks)
Brainstorming

 Discuss Burton responsibilities ( Laws and regulations) – 2 marks ( for one para)
 Recommend actions to be taken (in response to the management decision?) – 1 mark per action to a
max of 4
Burton responsibilities
The audit firm Burton is responsible to plan and perform the audit by being alert to any instances of non-
compliance with laws and regulation pertain to the coal mine industry and should take timely actions if any
instance of non-compliance is detected during audit.
The accident at the ledge hill mine where luckily no one was injured, Burton Company should:
1. Investigate the accident log book to confirm whether the claim of Dasset Company about no one injured
is right or wrong as this will give understanding to Burton about the nature of act and the circumstances.
2. Evaluate the implications of the accident on the financial statement if any, like any need of
impairment or any provisions to be recognized etc.
3. Seek a legal advice whether the accident is reportable to regulator considering no one was injured and
decide on the future course of action
4. Evaluate the implication on the opinion if the implication on the FS of the accident are not correctly
recognized by the management
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June 15 – Q2b

Discuss the implications of the audit senior’s note (Case above) for the completion of the audit,
commenting on the auditor’s responsibilities in relation to laws and regulations, and on any
ethical matters arising. (9 marks)
Brainstorming
 Likely implication of the matter in the case on completion of audit ( 1 mark per implication /
para form)
 Auditor responsibility for laws and regulations (2 mark per responsibility/ para form)
 Ethical matters if any in case ( 1 mark per ethical matter/ para form)
Assignments from Lecture 6

 Read an article- responding to NOCLAR

 Attempt the June 15 Q2b and email me the assignment at aaamock@gmail.com
What’s coming up in Lecture 7 to 10?

 Lecture 7- Topic 6
 Lecture 8- Topic 7 and 8
 Lecture 9- Topic 9
 Lecture 10- Topic 10