AU 317: Illegal Acts by Clients

AU-C 250: Consideration of Laws and Regulations in an Audit of Financial Statements


Original Pronouncement Statement on Auditing Standards (SAS) 54.
Effective Date This statement currently is effective.
Applicability Audits of financial statements in accordance with generally accepted auditing standards.


SAS No. 122, Codification of Auditing Standards and Procedures, is effective for audits of financial statements with periods ending on or after December 15, 2012.

AU-C Section 250 supersedes AU Section 317 and contains some substantive changes to requirements. It requires the performance of procedures to identify instances of noncompliance with those laws and regulations that may have a material effect on the financial statements. The auditor is specifically required to inspect correspondence with the relevant licensing or regulatory authorities. This is a new requirement and is expected to affect current practice.

There are also several changes that make explicit requirements that are implicit in AU Section 317. These are not expected to change practice:

  • Obtain an understanding of the legal and regulatory framework.
  • Obtain an understanding of how the entity is complying with that framework.
  • Determine whether the auditor has a responsibility to report suspected noncompliance to parties outside the entity
  • Document identified or suspected noncompliance, including ...

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