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SAS
No. 29 |
Consideration of Laws and Regulations in an Audit of Financial
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Statements |
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 Status |
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Issued by Auditing Standards Committee in Taiwan on 25 June, 1996. |
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Summary |
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When designing and performing audit procedures and in evaluating and
reporting the results thereof, the auditor should recognize that
noncompliance by the entity with laws and regulations may materially
affect the financial statements. However, an audit cannot be
expected to detect noncompliance with all laws and regulations.
Detection of noncompliance, regardless of materiality, requires
consideration of the implications for the integrity of management or
employees and the possible effect on other aspects of the audit. |
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The auditor should plan and perform the audit with an attitude of
professional skepticism recognizing that the audit may reveal
conditions or events that would lead to questioning whether an
entity is complying with laws and regulations. In order to plan the
audit, the auditor should obtain a general understanding of the
legal and regulatory framework applicable to the entity and the
industry and how the entity is complying with that framework. |
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After obtaining the general understanding, the auditor should
perform further audit procedures to help identify instances of
noncompliance with those laws and regulations where noncompliance
should be considered when preparing financial statements,
specifically:
(a) Inquiring of management as to whether the entity is in
compliance with such laws and regulations; and
(b) Inspecting correspondence with the relevant licensing or
regulatory authorities. |
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Further, the auditor should obtain sufficient appropriate audit
evidence about compliance with those laws and regulations generally
recognized by the auditor to have an effect on the determination of
material amounts and disclosures in financial statements. The
auditor should have a sufficient understanding of these laws and
regulations in order to consider them when auditing the assertions
related to the determination of the amounts to be recorded and the
disclosures to be made. |
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The auditor should be alert to the fact that audit procedures
applied for the purpose of forming an opinion on the financial
statements may bring instances of possible noncompliance with laws
and regulations to the auditor’s attention. |
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The auditor should obtain written representations that management
has disclosed to the auditor all known actual or possible
noncompliance with laws and regulations whose effects should be
considered when preparing financial statements. |
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When the auditor becomes aware of information concerning a possible
instance of noncompliance, the auditor should obtain an
understanding of the nature of the act and the circumstances in
which it has occurred, and sufficient other information to evaluate
the possible effect on the financial statements. |
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When the auditor believes there may be noncompliance, the auditor
should document the findings and discuss them with management. |
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When adequate information about the suspected noncompliance cannot
be obtained, the auditor should consider the effect of the lack of
sufficient appropriate audit evidence on the auditor’s report. |
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The auditor should consider the implications of noncompliance in
relation to other aspects of the audit, particularly the reliability
of management representations. |
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The auditor should, as soon as practicable, either communicate with
those charged with governance, or obtain audit evidence that they
are appropriately informed, regarding noncompliance that comes to
the auditor’s attention. |
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If in the auditor’s judgment the noncompliance is believed to be
intentional and material, the auditor should communicate the finding
without delay. |
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If the auditor suspects that members of senior management, including
members of the board of directors, are involved in noncompliance,
the auditor should report the matter to the next higher level of
authority at the entity, if it exists, such as the board of
directors or a supervisory board. |
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If the auditor concludes that the noncompliance has a material
effect on the financial statements, and has not been properly
reflected in the financial statements, the auditor should express a
qualified or an adverse opinion. |
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If the auditor is precluded by the entity from obtaining sufficient
appropriate audit evidence to evaluate whether noncompliance that
may be material to the financial statements, has, or is likely to
have, occurred, the auditor should express a qualified opinion or a
disclaimer of opinion on the financial statements on the basis of a
limitation on the scope of the audit. |
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The auditor’s duty of confidentiality would ordinarily preclude
reporting noncompliance to a third party. |
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The auditor may conclude that withdrawal from the engagement is
necessary when the entity does not take the remedial action that the
auditor considers necessary in the circumstances, even when the
noncompliance is not material to the financial statements. |
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 Effective
date
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This Statement is effective for audit of financial statements with
fiscal years ending on or after 31 December, 1996. |
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