Management’s responsibility for Compliance with Laws and Regulations
Management, with the oversight of TCWG, is responsible for ensuring that the entity’s operations are conducted in accordance with laws and regulations.policies and procedures an entity may implement to assist in the prevention and detection of non-compliance with laws and regulations:
1) Maintaining a register of significant laws and regulations with which the entity has to comply.
2) Monitoring legal requirements and ensuring that operating procedures are designed to meet these requirements.
3) Engaging legal advisors to assist in monitoring legal requirements.
4) Instituting and operating appropriate systems of internal control.
5) Developing, publicising and following a code of conduct.
6) Ensuring employees are properly trained and understand the code of conduct.
7) Monitoring compliance with the code of conduct and acting appropriately to discipline employees who fail to comply with it.
Auditor’s responsibility w.r.t compliance with Laws and Regulations
the auditor is not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. Auditor has to
1) Obtain understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework
2) The auditor shall obtain SAAE regarding compliance with the provisions of those laws and regulations generally recognised to have a direct effect on the determination of material amounts and disclosures in the financial statements.
3) The auditor shall Inquire management and, where appropriate, TCWG, to identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements
4) the auditor shall remain alert to the possibility that other audit procedures applied may bring instances of non-compliance or suspected non-compliance with laws and regulations to the auditor’s attention
The auditor shall request management and, where appropriate, TCWG to provide written representations that all known instances of non-compliance with laws and regulations have been disclosed to the auditor
Indications of Non-Compliance with Laws and Regulations
1) Investigations by regulatory organisations and government departments or payment of fines or penalties.
2) Payments for unspecified services or loans to consultants, related parties, employees or government employees.
3) excessive Sales commissions or agent’s fees in relation to those ordinarily paid by the entity
4) Purchasing at prices significantly above or below market price.
5) Unusual payments in cash
6) Unusual payments towards legal and retainership fees.
7) Unusual transactions with companies registered in tax havens.
8) Payments for goods or services made other than to the country from which the goods or services originated.
9) Payments without proper exchange control documentation.
10) Unauthorised transactions or improperly recorded transactions.
11) Adverse media comment.
Reporting of Identified or Suspected Non-Compliance
1) Reporting with in the entity
a) the auditor shall communicate with TCWG, unless all TCWG are involved in management of the entity, and therefore are aware of matters
b) If, in the auditor’s judgment, the non-compliance is believed to be intentional and material, the auditor shall communicate the matter to TCWG as soon as practicable.
c) If the auditor suspects that management or TCWG are involved in non- compliance, the auditor shall communicate the matter to the next higher level of authority at the entity, if it exists, such as an audit committee or supervisory board. Where no higher authority exists, or if the auditor believes that the communication may not be acted upon, the auditor shall consider the need to obtain legal advice.
2) Reporting in the Audit report
a) If the auditor concludes that the non-compliance has a material effect on the financial statements, and has not been adequately reflected in the financial statements, the auditor shall, in accordance with SA 705, express a qualified or adverse opinion on the financial statements.
b) If the auditor is precluded by management or TCWG from obtaining SAAE to evaluate whether non-compliance that may be material to the financial statements has, or is likely to have, occurred, the auditor shall, in accordance with SA 705 express a qualified opinion or disclaim an opinion
3) Reporting to Regulatory and Enforcement Authorities
If the auditor has identified or suspects non-compliance with laws and regulations, the auditor shall determine whether the auditor has a responsibility to report the identified or suspected non-compliance to parties outside the entity.