We obtained an understanding of the legal and regulatory framework that the company operates in, focusing on provisions of those laws and regulations that had a direct effect on material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, pensions and tax legislation, environmental regulations and health and safety laws, together with the provisions of other laws and regulations that do not have a direct effect on the financial statements, but compliance with which may be fundamental to the company’s ability to operate or to avoid a material penalty.
We tailored our response to those identified risks to include enquiring of management concerning actual and potential litigation and claims, performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud, and reviewing correspondence with tax authorities and other regulatory bodies.
Irregularities including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above to detect material misstatements in respect of irregularities, including Fraud. We design and perform audit procedures responsive to those risks including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with Laws and Regulations, we considered the following :
-The nature of the industry and sector, control environment and business performance including the groups remuneration policies, and performance targets.
Results of our enquiries of management and other key persons about the groups own identification and assessment of the risks of irregularities , including those that may occur a as result of fraud and error, and matters we identified from the groups policies and procedures and internal controls and the matters discussed among the audit team regarding potential indicators of fraud and where it might occur in the financial statements.
In addressing the risk of fraud through management override of controls we tested the appropriateness of journal entries and other adjustments, assessed whether the judgements made in making accounting estimates are indicative of a potential bias, and evaluated the business rationale of any significant transactions that are outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.