In the audit of financial statements the requirement of the following regulatory authorities may be taken into account during the audit namely, Bank of Ghana, Securities and Exchange Commission, the Ghana Insurance Commission.

Bank of Ghana: It is the regulatory authority over financial institution. In the banking Act as amended gave authority to the Bank of Ghana to grant financial institution operating license. The auditor of financial institution must consider whether the entity is licenced to carry on the business it is doing and whether it is complying with the terms and conditions of the operating charter. The Bank of Ghana has various requirements for banks to fulfil, examples are liquidity ratio, Capital adequacy ratio and submission of returns on persons transferring foreign currency out of the country beyond $10,000.00.

Securities and Exchange Commission: It has listing requirements that companies listed on the Ghana Stock Exchange (GSE) must comply with. It also requires filing of annual audited accounts and information required to be disclosed in the financial statements.

Insurance Commission: It regulates the operations of the Insurance companies in Ghana. Insurance companies must be general, life or reinsurance. This clear lines of operations must be followed by the companies in line with the business they are licensed to do. The commission also specifies the capital that qualifies a company to undertake general, life or reinsurance business.

National Pensions Regulatory Authority: It register the pensions fund under (NPRA Act) and provides regulations and periodic filing of actuarial valuation of the funds to ensure that the funds are viable.

ISA 250: Consideration of Laws and Regulations in an Audit of Financial Statements distinguishes the auditor’s responsibilities in relation to compliance with two different categories of laws and regulations as follows;
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 such as tax and pension laws and regulations; and
Other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements, 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 (for example, 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 statements.

• If the auditor becomes aware of information concerning an instance of non-compliance or suspected non-compliance with laws and regulations, the auditor shall obtain;
• An understanding of the nature of the act and the circumstances in which it has occurred; and
• Further information to evaluate the possible effect on the financial statements.
• Seek legal advice if sufficient information not made available on material non-compliance, which auditor suspects.
• If information cannot be obtained consider impact on opinion.
• Consider the impact of non-compliance on auditor’s risk assessment and the reliability of written representations, and take appropriate action.

• 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, publicise 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 it’s particularly industry.

Non-compliance with Insurance law regulations whether suspected or actual has many implications on the clients’ operations and Financial Statements

• Non-compliance with the insurance laws can lead to withdrawal of operating licence bringing the operations of the entity to either temporary or permanent halt thereby affecting the going concern of the entity.
• Non-compliance with the insurance laws may results in fines and penalties which can have adverse consequences on the result of operations and financial position of the entity if the amounts involved are substantial.
• If the investigations become public knowledge it may cause existing clients to end their relationship with the Company and prospective clients may refuse to patronise the services of the company.
• Non-compliance with the insurance laws has further implications on the financial statements, which if not properly treated may result in the financial statements not giving a true and fair view. Fines and damage should be correctly treated in the financial statements while provision should be made or disclosed in respect of contingent liabilities.
• Non-compliance with the insurance law if is found to be intentional can affect the integrity of the management and those charged with governance

• Risk assessment: In accordance with ISA 315 as part of our risk assessment we have to obtain knowledge of the clients operations to identify risk areas which include non-compliance with laws and regulations.
• Further audit procedures to perform. Having discovered that the company is under investigation we have to determine further audit procedures to perform to obtain sufficient appropriate audit evidence to determine the proper treatment of the suspected non-compliance with the insurance law in the financial statements.
• Assessing the effect of the suspected non-compliance with the Insurance law on the view given by the financial statements. We have to use the evidence obtained in two above to determine whether management has reflected the possible outcome of the investigation in the financial statements or have adequately disclosed the matter in a note to the financial statements.
• Going concern implication: We have to determine whether the investigations are likely to affect the going concern of the client.
• Audit Opinion: We have to consider the types of audit opinion to issue in the light of our audit findings and conclusion. If management correctly reflected the effect of the suspected non- compliance in the financial statements or adequately disclosed them we may issue an unmodified opinion with an emphasis of matter paragraph or issued a modified opinion depending on the circumstances.

1) In the new clarity project on the ISAs, the IAASB reiterated that the next of the ISAs is authoritative and must be followed even in the audit of SMEs.
2) However, the IAASB did state that the work an auditor will need to do in order to comply with the ISA will vary, a small simple entity being likely to require less work than a large and complex one.
3) The auditor needs to use professional judgement in applying the ISAs in order to determine the procedures necessary to comply with their requirements.
4) To take a specific example, the IAASB stated that, the requirement of ISA 315 to obtain an understanding of the entity and its environment is relevant to smaller entities but that because smaller entities are typically simpler, it will be much easier to obtain this understanding.
5) Individual clarity ISAs include guidance on specific points relating to small entity audits.

6) The purpose of this guidance is to assist in the application of the requirement of the ISA to a small entity audit.
7) The clarity project does not limit or reduce the responsibility of the auditor to apply and with requirement of ISAs.

It is the responsibility of management to ensure 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 requirement.
• Institute and operate appropriate systems of internal control induding internal audit and an audit committee.
• Develop, publicise 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 particulars industry, and a record of complaints.                      (1 mark each for any 5 valid point)

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 recognised 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 and
• 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 understating of
• The legal and regulatory framework applicable to the entity and the industry or section in which the entity operates
• How the entity is complying with that framework.                   (1 mark each for any 5 valid point)

• Physical observation of the flooding by the Senior Partners on their visit to the factory.
• Tip-off from residents of the area, likely.
• Investigation by a regulatory organisation or government department such as the Environmental Protection Agency (EPA).
• Payment of fines or penalties, if any.
• Adverse media comments, likely.

The auditors should consider the following, when evaluating the possible effect on the financial statements for non-compliance with the law:

• Going Concern applicability
• The potential financial consequences, such as fines, damages, penalties, litigation, threat of expropriation of assets and enforced discontinuation of operations.
• Whether the potential financial consequences require disclosure like enforced discontinuation of operations.
• Whether the potential financial consequences are so serious as to call into question the fair presentation given by the financial statements, or otherwise make the financial statements misleading.
• Provisions to be made in the accounts and contingencies.