Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
● the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
● we identified the laws and regulations applicable to the group through discussions with directors and other management, and from our commercial knowledge and experience of the industry.
● we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the group, including the Companies Act 2006, taxation legislation, data protection, anti-money-laundering, employment, environmental and health and safety legislation;
● we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management.
● identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the group's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
● making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud;
● considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations
To address the risk of fraud through management bias and override of controls, we:
● performed analytical procedures to identify any unusual or unexpected relationships;
● tested journal entries to identify unusual transactions;
● assessed whether judgements and assumptions made in determining the accounting estimates set out in note 1 were indicative of potential bias; and
● investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
● agreeing financial statement disclosures to underlying supporting documentation;
● reading the minutes of meetings of those charged with governance;
● enquiring of management as to actual and potential litigation and claims; and
● reviewing correspondence with HMRC.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.