ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is required of auditors regarding non-compliance with laws and regulations?

1. They may choose to ignore it for the sake of the client

2. They must assess its impact on financial statements

3. They are obligated to disclose all client information

4. They should document it but take no action

The correct answer is: They must assess its impact on financial statements

Auditors have a critical responsibility to assess the impact of non-compliance with laws and regulations on the financial statements of their clients. This requirement stems from the need to ensure that the financial statements provide a true and fair view of the entity's financial position and performance. Non-compliance can lead to significant financial implications, which may affect the validity and reliability of the financial statements. When auditors identify instances of non-compliance, they must evaluate whether such acts could result in material misstatements within the financial statements. This assessment includes understanding the nature of the non-compliance, the potential financial consequences, and whether adequate disclosures have been made in the financial statements. Moreover, the auditors are also responsible for considering the legal and regulatory framework applicable to the entity, which further emphasizes the importance of this evaluation. Effective auditing requires that any non-compliance is not merely noted but rather analyzed for its relevance to the audit results and reporting obligations. This process is crucial for maintaining the integrity of the audit and protecting the interests of stakeholders relying on the financial statements.