When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor
A) should inquire of management about whether the entity is in compliance with such laws and regulations.
B) has no responsibility to determine if any violations of these laws has occurred.
C) must report all violations, including inconsequential violations, to the audit committee.
D) should perform the same procedures as for violations having a direct effect on the financial statements.

Question

Quizplus · Accepted Answer

According to auditing standards, the auditor is required to inquire of management about compliance with laws and regulations that could have a material effect on the financial statements. This includes obtaining an understanding of the entity's internal control over compliance with such laws and regulations. However, if violations are discovered, it does not necessarily mean that they need to be reported to the audit committee if they are deemed inconsequential. The auditor should only report material violations that could have a perceived impact on the financial statements to the audit committee.

When Dealing with Laws and Regulations That Do Not Have