Acca aaa s21 Notes

2. Management’s and auditor’s responsibilities
ISA 250 states that “It is the responsibility of management, with the oversight of those charged with 
governance, 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 reported amounts and disclosures in an entity’s financial statements”.
Management’s responsibilities will be easier to meet if there is an effective system of internal controls, 
an internal audit department and an audit committee.
ISA 250 also states “the auditor is not responsible for preventing non-compliance and cannot be 
expected to detect non-compliance with all laws and regulations”. 
However, overall the auditor is responsible for identifying material misstatements whether caused by 
fraud or error but the ISA recognises that the risk of the auditor failing to detect material 
misstatements arising because of non-compliance can be increased because:
๏
There are many laws and regulations that do not directly affect the financial statements.
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Non-compliance might be accompanied by deliberate concealment.
๏
Whether an act amounts to non-compliance is ultimately a matter for the court or regulators.
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ISA 250 distinguishes the auditor’s responsibilities for compliance between two categories of laws 
and regulations:
๏
Those that have a 
direct
effect on the financial statements (eg tax and pension laws). Here, the 
auditor must obtain sufficient appropriate audit evidence regarding compliance with these 
laws. This is, essentially a positive confirmation.
๏
Those that do 
not
have a direct effect on the financial statements, but may be fundamental to 
business operations, going concern or the avoidance of material penalties. Here, the auditor’s 
responsibility is limited to undertaking procedures to help the identification of non-compliance 
where this could have a material effect on the financial statements. This is, essentially, a negative 
confirmation.