Document ID: chunk:federal_register_of_legislation:F2023C01125:body:0:p5
Version: federal_register_of_legislation:F2023C01125
Segment Type: other
Provision Reference: 
Character Range: 12367–15537

and disclosures in an entity's financial report.

Responsibility of the Auditor

    4.                   The requirements in this Auditing Standard are designed to assist the auditor in identifying material misstatement of the financial report due to non‑compliance with laws and regulations.  However, the auditor is not responsible for preventing non‑compliance and cannot be expected to detect non‑compliance with all laws and regulations.

    5.                   The auditor is responsible for obtaining reasonable assurance that the financial report, taken as a whole, is free from material misstatement, whether due to fraud or error.[1] In conducting an audit of the financial report, the auditor takes into account the applicable legal and regulatory framework.  Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements in the financial report may not be detected, even though the audit is properly planned and performed in accordance with the Australian Auditing Standards.[2] In the context of laws and regulations, the potential effects of inherent limitations on the auditor's ability to detect material misstatements are greater for such reasons as the following:

           * There are many laws and regulations, relating principally to the operating aspects of an entity, that typically do not affect the financial report and are not captured by the entity's information systems relevant to financial reporting.

           * Non‑compliance may involve conduct designed to conceal it, such as collusion, forgery, deliberate failure to record transactions, management override of controls or intentional misrepresentations being made to the auditor.

           * Whether an act constitutes non‑compliance is ultimately a matter to be determined by a court or other appropriate adjudicative body.

    Ordinarily, the further removed non‑compliance is from the events and transactions reflected in the financial report, the less likely the auditor is to become aware of it or to recognise the non‑compliance.

    6.                   This Auditing Standard distinguishes the auditor's responsibilities in relation to compliance with two different categories of laws and regulations as follows: (Ref: Para. A6, A12–A13)

         (a)                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 report such as tax and superannuation laws and regulations (see paragraph 14) (Ref: Para. A12); and

         (b)                Other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial report, but compliance with which may be fundamental to the operating aspects of the business, to an entity's ability to continue its business, or to avoid material penalties (e.g., compliance with the terms of an operating license, compliance with regulatory solvency requirements, or compliance with environmental regulations); non‑compliance with such laws and regulations may therefore have a material effect on the financial