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AT A GLANCE

Prepared by the Staff of the IAASB
October 2016

Non-Compliance with Laws and Regulations

An Overview of International Standard on Auditing (ISA) 250 (Revised), Consideration of

Laws and Regulations in an Audit of Financial Statements

2 . similar date for standards for other services. and the International Standards on Related Services (or ISRS). For More Information: Visit the IAASB’s website at: http://www.iaasb. the International Standards on Review Engagements (or ISRE). the International Standards on Assurance Engagements (or ISAE). between the NOCLAR provisions in the revised IESBA Code and the International Standards. 2017. or to clarify and emphasize key aspects of the revised IESBA Code in the IAASB’s International Standards. • Develop amendments to the IAASB’s International Standards to address such inconsistencies to the extent considered appropriate to enable the IAASB’s International Standards to continue to be applied effectively together with the IESBA Code. Effective Date: Audits of financial statements for periods beginning on or after December 15. The objective of the IAASB’s project to address Standards 1 related to non- NOCLAR was to: compliance with laws and • Identify any actual or perceived inconsistencies of approach or scope regulations (NOCLAR). in particular ISA 250. Consideration of Laws and Regulations in an Audit of Financial Statements.org/projects/noclar. 2017.Non-Compliance with Laws and Regulations This summary provides an Project Objective: The International Ethics Standards Board for Accountants’ Code of Ethics for overview of revisions to the Professional Accountants (the IESBA Code) has been revised to address the professional accountant’s responsibility in relation to NOCLAR and becomes IAASB’s International effective on July 15. 1 The IAASB’s International Standards comprise the International Standards on Auditing (or ISA).

. or suspected. These limited tipping-off provisions that might prejudice an amendments are intended to: investigation by an appropriate authority into inconsistencies of the approach • Align aspects of ISA 250 (Revised) to the an actual. • Determining whether further action is needed. the • Documenting in accordance with the implications for the auditor’s report. reliability of management’s representations. particularly the definition instances of identified or of non-compliance and the examples of laws The revised IESBA Code sets out a framework for and regulations within the scope of ISA 250 professional accountants to respond to identified or suspected NOCLAR. regulation or relevant compliance with laws and regulations to other ethical requirements. outside the entity and the auditor’s duty of assessing the appropriateness of their confidentiality. in an audit of group financial documentation requirements and statements). in charged with governance may be restricted or (Revised) in order to address order to allow for flexibility when ethical codes other prohibited by law or regulation. as the intention is not to duplicate all the communication with management or those amendments to ISA 250 specific requirements of the revised IESBA Code. illegal act. the authority outside the entity. in certain cases. to identifying and dealing with revised IESBA Code. 3 . and the requirements of the revised IESBA Code. for example actual or perceived than the IESBA Code are applied. (Revised). and includes considerations • Clarify the requirement regarding the auditor’s and actions such as: determination of whether to report identified or • Specific communications with management suspected NOCLAR to an appropriate authority and those charged with governance. including possible auditors (e. whether further action is needed. for example. consideration of whether to withdraw from the engagement. suspected NOCLAR. regulations. communicating to other auditors. The IAASB made limited (Revised). or relevant ethical requirements. • Highlight that the auditor may have additional • Communicating identified or suspected non- responsibilities under law.g.What changes were made to ISA 250 (Revised)? The IAASB has made limited amendments to ISA 250 • Emphasize the fact that. • Enhance the consideration of the implications which may include reporting to an appropriate of NOCLAR on the audit. in order to recognize the response to non-compliance and determining different provisions of laws.

and IESBA Code. which include: professional accountant under law. However. the IAASB’s International Standards in respect of ISA 250 (Revised) explains the audit procedures that other engagements other than audits focus on are required to be performed when NOCLAR is highlighting what may be expected of the identified or suspected. non-compliance with specifically highlights possible scenarios that may exist under law. regulation or relevant ethical requirements when NOCLAR is • Obtaining an understanding of the nature of the identified or suspected. avoid material penalties. appropriate authority. additional or more specific compliance with which may be fundamental to The work effort in ISA 250 (Revised) has not been requirements for professional the operating aspects of the business. The changes to laws and regulations.How is an auditor expected to address NOCLAR? ISA 250 (Revised) differentiates between two types of • Discussing the matter with management and ISA 250 (Revised) sets out laws and regulations as follows: those charged with governance and obtaining specific expectations for (a) Laws and regulations generally recognized to legal advice in certain circumstances. and • Evaluating the impact of NOCLAR on the audit requirements. and addresses the For category (a). relevant ethical statements. the auditor is required to obtain confidentiality considerations. For category (b). such as the (b) Other laws and regulations that do not have a opinion. 4 . auditors in relation to NOCLAR. to an amended. the revised standard now entity’s ability to continue its business. may set out direct effect on the determination of the amounts • Determining whether to report NOCLAR to an and disclosures in the financial statements. the auditor’s Statements responsibility is limited to undertaking specified audit Efforts in relation to NOCLAR are specific to the procedures to help identify non-compliance with those circumstances of the engagement. have a direct effect on the determination of • Evaluating the implications of NOCLAR in material amounts and disclosures in the financial relation to other aspects of the audit. In addition. regulation or relevant ethical such laws and regulations may therefore have a requirements in relation to reporting to an material effect on the financial statements. act and the circumstances in which it has occurred and further information to evaluate the possible effect on the financial statements. but appropriate authority outside the entity. sufficient appropriate audit evidence regarding compliance with the provisions of those laws and Engagements Other than Audits of Financial regulations. or to accountants.

and reporting fraud to an governance and reporting NOCLAR to an appropriate authority outside the entity appropriate authority outside the entity ISA 220 New application material to explain the ISAE 3402 New application material to highlight that Quality Control for an Audit of communication between a predecessor Assurance Reports on Controls at the auditor may communicate with third Financial Statements and successor auditor. ISRS 4410 (Revised) Amendments also made to address the Compilation Engagements practitioner’s expected level of understanding of laws and regulations beyond the scope of the standard ISA 240 Amendments to be consistent with those ISRE 2400 (Revised) Amendments to be consistent with those The Auditor’s Responsibilities made to ISA 250 (Revised). the communication with management and those charged with management and those charged with governance. regulation or requirements. in particular Engagements consider including in the audit than Audits or Reviews of to address the additional responsibilities engagement letter the auditor’s Historical Financial Information under law. linking it to the provisions in the IESBA Code 5 . the more pertinent amendments to the IAASB’s International Standards were as follows: ISA 210 Additional application material to ISAE 3000 (Revised) Amendments to be consistent with those Agreeing the Terms of Audit emphasize that the auditor should Assurance Engagements Other made to ISA 250 (Revised). regulation or relevant ethical responsibilities under law. regulation or relevant ethical requirements.Which other IAASB International Standards are affected by the changes? While minor conforming amendments were made to a number of the IAASB’s International Standards. the communication with requirements. in particular Engagements to Review made to ISA 250 (Revised). the communication with relevant ethical requirements regarding management and those charged with reporting of NOCLAR to an appropriate and governance and reporting NOCLAR to an authority appropriate authority outside the entity. in particular Relating to Fraud in an Audit of to address the additional responsibilities Historical Financial Statements to address the additional responsibilities Financial Statements under law. regulation or relevant ethical under law. including with a Service Organization parties when NOCLAR is identified respect to NOCLAR.

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