The Clarity Project – Compliance with Laws and Regulations

This is just a reminder that the Clarity Auditing Standards introduced new procedures with regard to your client’s compliance with laws and regulations. Specifically, the standards require the following:

  1. The  auditor must inspect correspondence, if any, with relevant licensing or regulatory authorities.
  2. While implied in prior audit standards, the new standards require the following:
    1. Obtain an understanding of the legal and regulatory framework.
    2. Obtain an understanding of how the entity is complying with that framework.
    3. Determine whether the auditor has a responsibility to report suspected noncompliance to outside parties.
    4. Document identified or suspected noncompliance.

As you perform your fraud inquiries, also ask about compliance with laws and regulations. See if the client has received any adverse correspondence from regulators or licensing bodies, and consider adding the response to your management representation letter.

Also document your understanding of the regulatory framework in your understanding of the entity and its environment.

Finally, consider that regulated entities (e.g., telecommunications) should have internal controls in place to ensure that legal and regulatory compliance is monitored and communicated.

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