In this video, I explain reporting on compliance when it comes to financial statements audit.
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The concept of reporting on compliance can be understood in different contexts:
Financial Statement Audit Context: In this scenario, an auditor is involved in a financial statement audit, which is a detailed examination of a company's financial records. During this process, the auditor may also be tasked with evaluating the company's adherence to contractual agreements or regulatory requirements. This aspect of the audit ensures that the company is not only financially accurate in its reporting but also compliant with external obligations and legal standards.
This task is a part of the financial statement audit process. Here's a breakdown of this concept:
Connection with Financial Statement Audit: The compliance report is issued in conjunction with the audit of a client's financial statements. This means the auditor is already engaged in examining the financial records of the client for accuracy and fairness.
Nature of the Compliance Report: In these cases, the auditor's role in relation to compliance is specific: they provide what is known as "negative assurance" on compliance. Negative assurance means the auditor is stating that, based on the financial statement audit, they have not come across any material non-compliance with contractual or regulatory requirements. However, this does not involve a detailed examination of all aspects of compliance.
Distinct from Compliance Audit or Attestation Engagement: It's important to distinguish this type of compliance reporting from a full compliance audit or an attestation engagement. In a compliance audit, the auditor would conduct a more thorough and specific examination of compliance matters, often under a different set of standards. In an attestation engagement, a practitioner (like a CPA) directly evaluates compliance with specific laws, regulations, or internal controls, independent of a financial statement audit.
In essence, when auditors issue a compliance report alongside audited financial statements, they are providing a limited assurance - based on their audit of financial statements - that no significant non-compliance issues were evident. This is a more narrow focus compared to the detailed scrutiny of a compliance audit or the direct assessment of an attestation engagement.
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28 сен 2024
