- 10 Marks
Question
b) Wassaman Company is a private company established in the Wassa District in the Western Region to produce plastic bags to supply to sachet water producers. The company has 10 outlets within the district through which distribution is made to water producers. Employees of the company have been complaining about management’s reluctance to provide the health and safety needs of the company. The chief of the area has also shown his dissatisfaction about the extent of compliance with environmental laws and regulations by the company.
Required:
Discuss the responsibilities of management and the auditor to ensure adherence to laws and regulations. (10 marks)
Answer
Responsibility of management for compliance
It is the responsibility of management to ensure that a client operation is conducted in accordance with laws and regulations. The following policies and procedures, among others, may be implemented to assist management in the prevention and detection of non-compliance with laws and regulations:
- Monitor legal requirements and ensure that operating procedures are designed to meet these requirements.
- Institute and operate appropriate systems of internal control including internal audit and an audit committee.
- Develop, publicize, and follow a code of conduct.
- Ensure employees are properly trained and understand the code of conduct.
- Monitor compliance with the code of conduct and act appropriately to discipline employees who fail to comply with it.
- Engage legal advisors to assist in monitoring legal requirements.
- Maintain a register of significant laws with which the entity has to comply within its particular industry, and a record of complaints.
(1 mark each for any 5 valid points)
Responsibility of the Auditor
ISA 250.10 demands that auditors are to:
- Obtain sufficient appropriate evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements.
- Perform specified audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements.
- Respond appropriately to non-compliance or suspected non-compliance with laws and regulations identified during the audit.
As part of obtaining an understanding of the entity and its environment in accordance with ISA 315, ISA 250.12 requires the auditor to obtain a general understanding of:
- The legal and regulatory framework applicable to the entity and the industry or sector in which the entity operates.
- How the entity is complying with that framework.
(1 mark each for any 5 valid points)
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