FACULTYOFBUSINESSMANAGEMENTSCI ENCESANDECONOMI

CS
DEPARTMENTOFFINANCEANDACCOUNTING
STUDYNOTES(Oct
ober
,2020)

Audi
ti
ngandAssur
ance1
AC404

1.I
ntroducti
on-Audit
ing&AssuranceI
2.Stat
utoryAudi
tsandRegul
ation
3.Corporat
eGovernance
4.
Prof
essi
onalEt
hics
5.I
nter
nal
Audit
6.Audi
tPl
anni
ngandRi
skAssessment
7.I
nter
nal
contr
ol
8.Comput
eraudi
t

Topi
c4of8

1
Cont
ent
s
1.I
ntr
oduct
ion 3
2.Def
ini
ti
ons 3
3.St
ruct
ureoft
hecode 4
4.Par
t1-Gener
alappl
icat
ionoft
hecode 5
4.
1Int
roduct
ionandf
undament
alpr
inci
ples-sect
ion100 5
4.
2.Fundament
alpr
inci
ples 5
4.
3Basi
soft
heCode–t
heconcept
ual
framewor
kappr
oach 5
4.
4Thecodecat
egor
isest
hreat
sasf
oll
ows: 7
4.
4.1.Sel
f-
int
erestt
hreat
s 7
4.
4.2Sel
f-
revi
ewt
hreat
s 7
4.
4.3Advocacyt
hreat
s 7
4.
4.4Fami
li
ari
tyt
hreat
s 7
4.
4.5I
nti
midat
iont
hreat
s 7
4.
5Exampl
esofci
rcumst
anceswhi
chmaycr
eat
ethr
eat
stof
undament
alpr
inci
plesandsomepossi
blesaf
eguar
ds. 7
4.
5.1Sel
fInt
erest 7
4.
5.2Sel
fRevi
ew 8
4.
5.3Advocacy 9
4.
5.4Fami
li
ari
ty 9
4.
5.5I
nti
midat
ion 10
5.PART3-PROFESSI
ONALACCOUNTANTSI
NPUBLI
CPRACTI
CE 10
5.
1-310Conf
li
ctsofI
nter
est 11
5.
2-320Pr
ofessi
onalAppoi
ntment
s 11
5.
3-321SecondOpi
nions 11
5.
4-330FeesandOt
herTypesofRemuner
ati
on 11
5.
5-340I
nducement
s,I
ncl
udi
ngGi
ft
sandHospi
tal
it
y 12
5.
6-350Cust
odyofCl
ientAsset
s 12

2
1.I
ntr
oduct i
on
 Dif
ferentrel
igions,races,cult
uresandbackgr oundsmayseeet hical i
ssuesfrom totall
ydifferentperspectives,soi ti
s
i
mpossi blet
oest abli
shonesetofhar dandf astruleswhichcanbeappl iedtoallsit
uat i
onswhi chraiseethicalissues.
 Soint heabsenceofhar dandf astrul
es,howdoesaper sondeci dewhet hertheethicaldecisiont heyhavemade, i
sthe
ri
ghtone?
 Thereisnosi mpl esoluti
on,butiftheanswert othefoll
owingquest ionsisyes,thent hedecisioni sprobablyther ight
one
∙I sthedeci sionhonestandt ruthful
?
∙I nmaki ngt hedecision,wil
lIbeact i
nginawayt hatIwouldlikeot her
stoactt owar dsme?
∙ Willthi
sdeci si
onbuildgoodwi l
landresul
tint hegreatestgoodf orthegreatestnumber ?
∙ Woul dIbecomf or
tableexplai
ningmydeci siontopeoplewhoIr espectfortheirmor alvalues?

 Themostcr it
icalprerequisit
ef ortheaccount i
ngandaudi t
ingpr ofessi onistheat tai
nmentoft hehighestlevelof
professionalethicsbyi t
smember s,bot hsingularlyandcollect
ivel y.
 Member softhepr ofessionmusthavet henecessar yint
ell
ectual andpr acti
cal competency,butthesewillbewor t
hli
tt
le
i
fr espectfor,andt r
ustint hepr of
essi oniser odedbymember sdi splayingal ackofpr of
essionalethi
cs.
 ThePAABadopt edt heIFACCodeofPr of
essional Et
hicsforProf essi onalAccount ants(
publishedinApril2018)as
prescribedbyt heInternationalFeder ationofPr ofessi
onalAccount ants(I
FAC) .
 The( IFAC)identifi
edskill
sandi nt
egr ityasthepr e-eminentattr
ibut esofChar teredAccountants(SA).

2.Defini
ti
ons
Ethi
cs:asetofpr inci
plesormorals,r
ulesofconduct
.
Morals:“concer
nedwi t
ht hedi
sti
ncti
onbetweenr i
ghtandwrong..
.vi
rtuousi
ngener
alconduct
”.
Prof
essionalconduct:asetofpri
ncipl
eswhi chgover
nstheprofessi
onalandwi
derbehavi
ourofaccount
ant
sand
audi
tors.

3
3.St
ruct
ureoft
hecode

Par t1
Complyi
ngWithTheCode,Fundament alPr i
ncipl
esAndConcept ualFramewor k
(
AllPr
ofessi
onalAccountant s-Secti
ons100To199)
Part2 Par t3
Pr
ofessionalAccount
ants ProfessionalAccount ant
sInPublicPracti
ce
InBusi ness (Secti
ons300To399)
(Sect
ions200To299) I
nternati
onalIndependenceSt andards
(Part
s4aAnd4b)
Part4a–IndependenceForAudi tAndRevi ewEngagement s(Sect
ions
400To899)
Part4b–IndependenceForAssur anceEngagementsOt herThanAudit
AndReviewEngagement s(Sections900To999)
Gl
ossary(Al
lProfessionalAccount ants)
PART1:
110–TheFundament alPr i
nciples
111–Integrity
112–Obj ectivi
ty
113–Pr ofessionalCompet enceandDueCar e
114–Conf identiality
115–Pr ofessionalBehavi or
120–TheConcept ualFr amewor k
Theconcept ualframewor kspeci f
iesanappr oachf
orapr ofessi
onalaccountantt
o:
(a)Ident i
fyt hreatst ocompl iancewi ththefundamentalpri
nci es;(
pl Self-
inter
est,
sel
f-
revi
ew,
advocacy,
fami
li
ari
ty,
int
imi
dat
ion)
(b)Eval uatet het hreatsidentif
ied;
(c)Addr esst hethreatsbyel iminat i
ngorr educi
ngthem toanacceptablelevel
.
PART3
310Confli
ctsofI nt erest
320Professional Appoi ntment s
321SecondOpi nions
330FeesandOt herTypesofRemuner ati
on
340I
nducement s, IncludingGi ftsandHospi tali
ty
350CustodyofCl ientAsset s
360Respondi ngt oNon- compl iancewi thLawsandRegul ati
ons( NOCLAR-keyst eps)

4
4.Par
t1-Gener
alappl
icat
ionoft
hecode
4.
1Int
roduct
ionandf
undament
alpr
inci
ples-sect
ion100
 Registeredauditorsandcharteredaccountantshavear esponsibil
it
ytoactinthepubl
icinter
est.
 Thechar t
eredaccountant
’sresponsibi
li
tyisnotexclusivelytosati
sfytheneedsofanindivi
dualcl
ient(
char
ter
ed
account antinpubli
cpract
ice)orhisempl oyer(chart
eredaccount anti
nbusiness).
 TheCodeest abli
shesthefundament alpr
incipl
esofet hicalbehavi
ourandprovidesaconceptualf
rameworkwhicht
he
charteredaccountantcanappl yinethi
calsit
uations.
4.
2.Fundament
alpr
inci
ples
TheCodeest ablishesfivefundamentalpr
inci
ples,
wit
hwhi
chchar
ter
edaccount
ant
smustcompl
y
1.I
ntegrit
y
2.Objecti
vity
3.Professional compet enceandduecare
4.Confidentiali
ty
5.Professional behaviour
4.
3Basi
soft
heCode–t
heconcept
ualf
ramewor
kappr
oach
A.TheCodepr ovi desanappr oachwhichchar ter
edaccount ant sshouldadopttoensuret hattheycomplywit
hthe
fundamentalpr incipl
es.
B.Theref
orechar teredaccount antsusingt hei
rprof essi
onal j
udgement ,ar
erequir
edto
∙I denti
fythreat stotheircompliancewi ththef undament al pr
inci
ples
∙ Evaluatethesi gnifi
canceoft hethreatand
∙ Addresst het hreatsbyel i
minati
ngt hem orr educingthem t oanaccept abl
elevel
.
C.Whenappl yi
ngt heconcept ualfr
amewor k,t
hepr of
essional accountantshall
:
∙ Exerciseprof essionaljudgement.
∙ Remai nalertt onewi nformati
onandt ochangesi nfactsandci rcumstances
∙ Considerwhet herthesameconcl usionwoul dl i
kelyber eachedbyanot herpart
y(thet hir
dpart
ytest)
D.Tobeabl etoappl ytheconceptualappr oach,thechar ter
edaccount antmustunderstandt he:
∙ Fundament alpr i
ncipl
es
∙ Typesoft hreatwhi chmayar ise
∙ Safeguardswhi chmaybeappl i
ed.
5
 Fundament
alpr
inci
plesofPr
ofessi
onalEt
hicssect
ion110
a)I
ntegri
ty – Tobestrai
ghtf
orwardandhonest,f
air Charteredaccount ant
s/audi torshoul dnotbeassoci atedwit
hinfor
mationthey
Secti
on111 deal
ingandtr
uthfuli
nallpr
ofessi
onaland bel
ieve:
busi
nessrel
ati
onships. * Cont ainsamat eri
all
yf alseormi sleadingstatement
* Cont ainsstat
ement sori nformationpr ovi
dedr ecklessl
y;or
* Omi t
sorobscur esinformat i
onwher esuchomi ssionorobscuri
tywouldbe
mi sleadi
ng.
b)Object
ivi
ty – Nott
ocompromisepr
ofessi ness Obj
onalorbusi ectivit
yconsistsinthef actthatanaudi t
orisasf airaspossi
bleandhasno
Secti
on112 j
udgment
sbecauseof probl
e ms wit
hp r
ejudices,co nf
li
ctso finterestorexternali
nfl
uences(Bost
anetal.
* bi
as, 2013)
* conf l
ictofi nterestor
* unduei nfluenceofot hers.
c)Prof
essi
onal i. At tainandmai ntainpr ofessional * Thisconsistsofprovi
dingcompet entprofessi
onal servi
ceswithcar
eandthe
Competence knowl edgeandski l
latthelevelwhi ch l
evelofknowl edgethatjusti
fi
esexpectati
onsofacl i
entoroftheemployer
,and
andDueCare ensur est hatacl ientorempl oyi
ng thi
sismai ntainedahighlevel,
(Grosu,2019,Ciubotari
uetal.2019)
Sect
ion113 organi zationr ecei vescompet ent * Latestdevelopmentsandi nnovat
ionsinpr of
essionalpract
iceinl
awshould
alwaysber eviewedandal waysbeinformedofchangesandnews.
professi onalser vi ce,basedoncur rent
technicalandpr of essionalstandardsand
relevantl egislation;and
i
i. Actdi li
gent lyandi naccor dancewi th
appl i
cabl etechni calandpr ofessional
standar ds.
d)Conf
ident
ial
it
y – Tor espectt heconf ident i
ali
tyofi nfor
mat i
on Charteredaccount antsmustmai ntai
nconf i
dential
ityinasoci alenvir
onmentand
Sect
ion114 acquiredasar esul tofpr ofessionaland mustbeal erttot hepossi bil
ityofunintentionall
ydi sclosi
ngconf ident
ialinf
ormati
on
businessr el
at i
onshi ps. tofri
ends, long-term businessassoci atesoracl osef amilymember( defi
nit
ion:
parent,childorsi bl
ing),orani mmediatef ami l
ymember( definiti
on:spouseor
equivalentordependent ).
e)Prof
essi
onal – Tocompl ywithrel
evantlawsand Apr ofessional accountantshal lbehonestandt ruthfulandshal lnotmake:
Behavi
our regulat
ionsandavoi danyconductthatt
he a)Exagger atedclaimsf ortheservicesof feredby, orthequal i
fi
cati
onsor
Sect
ion115 professionalaccountantknowsorshoul
d experienceof ,t
heaccount ant
;or
knowmi ghtdiscr
edittheprof
essi
on. b)Di sparagi ngreferencesorunsubst ant i
atedcompar isonst othewor kof
others.
Inordert obeagoodaudi toronemusthaveasui teofqual iti
esconsi dered
essential.
• sci ence, compet enceandconsci ence,
• i ndependenceofspi ri
tandmat eri
al di
sinterest,
• mor ali
ty,probit
yanddi gnit
y

6
4.
4Thecodecat
egor
isest
hreat
sasf
oll
ows:
4.4.
1Self
-i
nter
estt
hreats
Threat
sthatafi
nancialorot
heri
nterestwi
lli
nappr
opr
iat
elyi
nfl
uencet
hechar
ter
edaccount
ant
’sj
udgementorbehavi
our
andleadhimtoactinhisownself
-inter
est
.

4.4.2Self-
revi
ewthreat
s
Threatsthatachart
eredaccountantwil
lnotappropr
iatel
yeval
uat
etheresul
tsofapreviousser
viceperf
ormedbythe
charteredaccount
antorbyanotherindi
viduali
nhisfir
m, onwhi
chthechart
eredaccountantwi
llr
elyaspartofacur
rent
service

4.
4.3Advocacythr
eat
s
Thr
eatsmayar i
sewhenachar
ter
edaccount
antpr
omot
esacl
ient
’sposi
ti
ont
oapoi
ntt
hathi
ssubsequentobj
ect
ivi
tymay
becompromised,

4.
4.4Fami l
iar
ityt
hreat
s
Threatswhichmayar i
sewhen,
becauseofacl
oser
elat
ionshi
p,achar
ter
edaccount
antbecomest
oosympat
het
ict
othe
i
nterestsofother
s;

4.
4.5Inti
midat
ionthreat
s
Threatswhi
choccurThreat
swhi
choccurwhenachar
ter
edaccount
antmaybedet
err
edf
rom act
ingobj
ect
ivel
ybyact
ual
orpercei
vedpressur
es,

7
4.
5Exampl
esofci
rcumst
anceswhi
chmaycr
eat
ethr
eat
stof
undament
alpr
inci
plesandsomepossi
blesaf
eguar
ds.
Nei
therthethr
eat
snort hesaf
eguar
dsareexhaust
ive.
Theint
enti
onistoil
lust
ratet
heappl
icat
ionoft
heconcept
ual
framewor
k

Thr
eat Example Fundament alPri
ncipl
eThr eatened Saf
eguar d
4.5.1Sel
f WalterWiseman,
anaudit • Obj ectivit
y, * Apol icywi thint heaudi tfirm whi chpr ohibits
Inter
est part
ner,owns15%ofthe • I nt
egr i
ty, par tnersandempl oyeesf rom hol dingshar esin
sharesi
nBut t
co(Pvt
)Lt
d,an • Pr ofessionalBehaviour anassur ancecl i
ent .(Wal terWi semanshoul d
audi
tcli
ent.  ( WalterWi semanmayover look disposeofhi si nvest ment ).
i
ssuest hatar
iseonaudi t,
topr ot
ect * Apr ocedur ef ormoni t
or i
ngt hispr ohibiti
onanda
hisinvestment). disci pli
nar yf ollowupf ort ransgr essor s.
JoeZulu,
anauditmanager, • I nt
egr i
ty, * RemovalofJoeZul uf r
om t heaudi tengagement
hasbeenoff
eredahighl
ypaid • Obj ectivit
y, team.
j
obatoneofhisauditcl
ient
s. • Pr ofessionalBehaviour * Havi ngt hekeyaudi twor kper for medbyJoeZul u
(JoeZul umayover lookissuest hat reviewedbyachar ter edaccount anti ndependent
ari
seonaudi tsoasnott ojeopar di
se oft heengagement .
thejobof f
er )
. * Not ifyingt hecompany’ saudi tcommi tteeoft he
situat i
onandt hesaf eguar dsputi npl ace.
FredFassetcoul dmakea • I ntegrit
y, * Ongoi ngeducat i
onf orempl oyeesast oet hical
greatdealofmoneyby • Conf ident
ial
ity, issues, compl iancewi t
hl egislati
onet c
getti
nghiswi f
etopur chase • Obj ecti
vit
y speci ficallyrel atingt ol i
stedcompani es.
sharesinal i
stedcompanyof • Pr of essi
onalBehaviour. * Instantdi smi ssalofaf irm empl oyee( Fred
whichhei sinchargeoft he (FredFassetwoul dbe,acti
ng Fasset )fort hiski ndofbr eachoft he
audit,
beforetheannual dishonest l
yandmaki nguseof fundament alpr inciples.
fi
nancialstat
ement sare confident i
ali
nformation.I
fhiswi
fe
rel
eased. purchasesshar es, Fr
edFasset’
s
objectivit
ywoul dalsobe
compr omi sed).

4.
5.2Sel
f HarrisFord,apar t
nerinan • Objecti
vit
y * Noti
f yi
ngthe3rdpart
yoftheextentofHar
risFor
d
Revi
ew auditi
ngf i
rm hasbeenasked (Har
ri
sFor dmaybet emptedt
oomit andhi sengagementteamsinvolvementi
nthe
bya3rdpar tytoprovidea val
idcr
iti
cismsofthesyst
em ashe system designandimplement
ationpri
ort
o
reportona( nonaudit) desi
gnedit– heisrepor
ti
ngonhis acceptingtheengagement.
cli
ent’scomput er
isedsales ownwor k)
.
system, whichheandhi s
team hadr ecentl
ydesigned
8
 andimplemented.
Hopegood&Cowr it
esupthe • Objectivi
ty Ineff
ectt heCompani esandot herBusi nessEnt it
ies
accounti
ngrecordsofTui
s (Theauditfi
rmisnotindependentasi
t Act(2020)pr ovidest hesaf eguar d.
(Pvt
)Ltdandhavebeen will
begivinganopiniononfinanci
al *IntermsofSec192, anindi vidual( orf ir
m)maynot
approachedtoperf
ormthe stat
ement si
tprepar
edf r
om beappoi ntedaudi t
ori fhe(orhi spar tneror
annualaudit
. account
ingrecordsitcompil
ed.) employees)r egul arl
yper formst hedut i
esof
bookkeeperoft hatcompany.
ClarenceKl eynhans, whowas, • Obj ectivit
y, * Af ir
m pol i
cywhi chpr ohibitsnewl yappoint ed
forsomeyear s,
thef i
nancial • I ntegrityand employeessuchasCl arenceKl eynhans( comi ng
managerofKambo( Pvt)Ltd, • Pr ofessionalCompet ence fr
om acl i
ent )f r
om bei ngpar toft heaudi tteam
recentlyresignedt ogoback ( AsClarenceKl eynhanswoul dbei n unti
l,say, twoyear shavel apsed.
i
ntot hepr ofession.Hewas chargeoft heaudi toffinanci al * Appoi nt i
nghi mt ot heengagementt eam (soast o
empl oyedbyt heaudi tf
irm i
nformat i
onsomeofwhi chhewoul d makeuseofhi sknowl edge)butnotast he
thathol dstheappoi ntmentof havebeendi rectlyresponsi blef or,
he manager .
auditorofKambo( Pvt)Ltd cannotber egardedasbei ng * Compr ehensi ver eviewsoft hewor khecar ries
andbecauseofhi sknowl edge i
ndependent .Hisi ntegr
itymayal sobe outifhedoeswor kont heaudi t.
ofthecompany, ithasbeen thr
eatened, ast her ecouldbei ssuesin * Not i
fyi ngt hosechar gedwi t
hgover nanceoft he
suggest edthathebepl aced whi chhewasi nvol vedast hef inancial si
tuationbef or eplacinghi m ont het eam.
i
nchar geoft heaudi t
. manager ,butwhi chhedoesnotwant Note:ast heaudi torshoul dbei ndependentandseen
tobesubj ectt oaudi t.I
tisal so tobeindependent ,t
hebestsaf eguar dwoul dbet o
possibl
et hathel acksthepr ofessional keepClar enceKl eynhansof fthet eam.
compet encet omanagean
engagementoft hisnatur e.)

4.
5.3 DandyNcobo, apart
nerinan • Obj ecti
vit
y * Af i
rm pol
icywhi chrequiresthatapar tner
Advocacy auditfi
rm,hasbeenrequested (DandyNcobomayover -
promot eor i
ndependentoft heclient(Hi-Shi
ne( Pvt)Ltd),
(thi
scategor
y tone got
iat
e t
hesal
e ofHi- over-
statetheworthofhisclienttoget handlethesalenegot i
ation.
of Shine(Pvt)Lt
d,anaudit abetterpri
ce, t
otheextentthatheis * Af i
rm pol
icywhi chli
mi t
st henon-assur ance
threati
sfar cl i
ent. percei
vedasnotbei ngobjectiveinhi
s servi
cesof f
eredt oassuranceclient
st oonl y
l
esscommon approachtot henegot
iati
ons.) thosewhichcar r
yami ni
mal t
hreatofnon-
thatthe compliancewi t
ht hefundament alprincipl
es.
others)

4.
5.4 Thef
inanci
aldi
rect
orof • Obj
ect
ivi
tyand * Af
ir
m pol
icywhi
chf
orbi
dst
heaccept
anceof
9
Fami
li
ari
ty Tr
avelBugLt
dhasof
fer
edt
o • Pr
ofessi
onalcompet
enceanddue gift
sandhospi tal
it
ywhi chareanythingother
takethewhol eaudi
tteam on care thanclearlyi
nsigni
ficant.
anallexpensespaidweekend (Thist ypeofsi tuationchangest he
* Ast r
ictdisci
pli
naryactionforanytransgr
essions
toanexclusivegamel odge. prof essionalr elati
onshi pbet weent he
byst af
f,whodonotadher etothi
spol i
cy.
Hehasst atedthatt
hiswill audi tteam f rom pr ofessi onalt o
becomeayear l
yeventifthe “fami li
ar”.Inr eturn,thef i
nanci al
auditdeadl
ineismet. directormayexpect“ favour s”f r
om the
audi tteam.Thepr omi seoff uturetri
ps
i
ft hedeadl i
nei smet ,
mayt hreatenthe
object i
vity,adher encet ost andar dsand
duecar eoff utureaudi tteamswho
maybet empt edt o“ over l
ook”audi t
probl emst oensur ethedeadl i
nei s
met .)
MarieLopes,theaudit • Obj ect i
vity * RemovalofMar i
eLopesf rom theaudit
.
manageront heauditof (Mar i
eLopeswi llshor tlyhavean * Poli
ciesandpr ocedureswithi
nt hefi
rm whi
ch
TopazLtdwillshort
lymarr
y i
mmedi atef ami lymember( spouse) monitorspecifi
call
ytheindependenceofthe
Bil
lBrownthef i
nancial whoi sinaposi ti
ont oexer tdirectand fi
rm’sempl oyeessothatsituati
onssuchasthis
di
rectorofTopazLtd. signi f
icantinf luenceovert he arei
dentif
iedandcanbeaddr essed.
i
nf ormat ionwhi chshewi llbeaudi ti
ng.
Heri ndependencei scompr omi sed.)

4.5.5 Thefi
nanci
aldi
rectorof  Objecti
vit
y, * Ar eviewoft hewor kcarri
edoutont heauditbya
Inti
midat
ion RubdubLtdhasinf
o r
medRex  Professi
onalCompet
enceanddue partnerindependentoft hecli
ent .
Randolf
,theengagement careand * Qual i
tycontrolprocedureswithi nt hefi
rm which
part
neront heauditof  I ntegri
ty. reviewthedesi r
abili
tyofcontinui ngprofessional
RubdubLt dthatunlesst
he (Tor etai
nt heaudi
t,RexRandolfmay rel
at i
onshipswi t
hthef i
rm’sclient s.
audi
tfeeisr educedby30%, compr omi seonstandardse.
g.do * Raisingthemat terwiththeaudi tcommi tt
ee
hisfi
rm wil
lber emovedfr
om i
nsuf fi
cientauditwork,
andfailt
o and/ orothergovernancest r
uct ures.
theappointmentofaudit
or. foll
owuppr obl
emswhichheisf ul
ly
awar eshoul dbefoll
owedup,soasnot
togo“ overbudget ”onther
educed
fee).

Thefi
nancialdi
rectorof • Objecti
vit
y, * Appoint
inganengagementteam whichconsi
sts
Pr
oTech(Pvt)Lt
di svery • Professi
onalCompet
enceanddue ofexper
ienced,
str
ongwil
ledindi
vidualswhowil
l

10
 aggressi
ve,domineeri
ngand care. behaveprofessionallyunderpr essure.
dismissi
veoftheaudit (Thefinancialdirector’
sat t
it
udemay * Qualit
yprocedureswi t
hint hef
irm whi chrevi
ew,
functi
onandauditteam. compr omiset heaudi tteam’s thedesir
abil
it
yofcont inuingprofessional
professi
onalj udgement .Theymay“ be rel
ati
onshipswi t
ht hef i
rm’ scl
ients.
bull
ied”intoignor i
ngpr oblemsonthe * Di scussi
onoft hesi t
uat i
onwi t
ht heclient’
s
auditoutoff earoft hefinancial governancestructure.
dir
ector.) * Discussi
onoft hesi t
uat i
onwi t
ht heaudi t
commi tt
ee.

5.PART3-PROFESSI ONALACCOUNTANTSI NPUBLI

CPRACTICE
310Confli
ctsofInterest
320Professi
onalAppoi ntments
321SecondOpi ni
ons
330FeesandOt herTypesofRemuner ati
on
340Inducements,IncludingGif
tsandHospi
tal
it
y
350CustodyofCl i
entAsset s
360RespondingtoNon- compli
ancewi
thLawsandRegul
ati
ons(
NOCLAR-keyst
eps)(
excl
uded)

Apr of
essionalaccount antshal lnotal l
owaconf li
ctofi nteresttocompr omi seprofessionalorbusinessjudgment.
5.
1-310Conf
li
cts
Exampl esofcircumst ancest hatmi ghtcr eat eaconfl
ictofi nterestinclude:
ofI
nter
est
 Pr ovi
dingat ransact ionadvi sor yser vicet
oacl ientseeki ngtoacqui reanaudi tclient
,wheret hefi
rm hasobt
ained
confi
dent i
alinformat iondur ingt hecour seoftheaudi tthatmi ghtber elevanttothetransacti
on.
 Pr ovi
dingadvi cet otwocl ient satt hesamet i
mewher ethecl ientsar ecompet ingt oacqui
ret hesamecompany
andtheadvi cemi ghtber elevantt ot heparti
es’ compet iti
veposi tions.
 Pr ovi
dingser vicest oasel l
erandabuyeri nrelationtot hesamet ransact i
on.etc
• Apr of
essionalaccount antshal ldet er
mi newhethert her
ear eanyr easonsf ornotaccept i
nganengagementwhent he
5.
2-320
accountant:
Prof
essional
a.I saskedbyapot entialclientt or eplaceanotheraccount ant;
Appoint
ments
b.Consi derstender ingf oranengagementhel dbyanot heraccount ant;or
c.Consi dersunder takingwor kt hatiscompl ement aryoraddi t
ionalt ot hatofanot heraccountant.

• I
funablet
ocommuni
catewit
htheexi
sti
ngorpredecessoraccount
ant
,thepr
oposedaccount
antshal
ltakeot
her
r
easonabl
est
epst
oobtaini
nfor
mati
onaboutanypossiblethr
eats.
11
 • Whenanexi sti
ngorpr edecessoraccount antisaskedt orespondt oacommuni cat
ionf r
om apr oposedaccount ant ,
theexisti
ngorpr edecessoraccount antshal l
:
a.Compl ywi t
hr el
evantlawsandr egul at i
onsgover ningt herequest;and
b.Pr ovideanyi nfor
mat i
onhonest lyandunambi guousl y.
• Inthecaseofanaudi torr eviewoff inanci alst at
ement s,aprofessionalaccount antshallrequesttheexi sti
ngor
predecessoraccount anttopr ovideknowni nformat i
onr egardinganyf actsorot herinformationofwhi ch, i
nt he
existi
ngorpr edecessoraccount ant ’
sopi nion, t
hepr oposedaccount antneedst obeawar ebeforedecidingwhet herto
accepttheengagement .
a.I fthecli
entconsent stot heexistingorpr edecessoraccount antdiscl
osi nganysuchf actsorot herinformation,the
exist
ingorpr edecessoraccount antshal lprovidethei nformationhonest l
yandunambi guously;and
b.I fthecli
entfailsorref
usest ograntt heexi sti
ngorpr edecessoraccount antpermissiont odiscussthecl ient
’s
affai
rswiththepr oposedaccount ant, t
heexi stingorpr edecessoraccount antshalldiscl
oset hisfacttot he
proposedaccount ant,whoshal lcar efullyconsi dersuchf ailur
eorr efusalwhendet erminingwhet hertoacceptt he
appointment .
c.Forar ecurri
ngclientengagement ,apr of essi
onalaccount antshallperiodicall
yreviewwhet hert ocont i
nuewi t
h
theengagement

• Whenapr ofessi
onalaccountantint
endstouset hewor kofanexper t
,theaccount
antshalldet
erminewhet
hertheuse
iswarrant
ed.
Ifanentit
yseekingasecondopi ni
onf r
om aprofessionalaccountantwil
lnotpermitt
heaccountanttocommunicatewi
th
5.
3-321Second
theexist
ingorpredecessoraccountant
,theaccountantshalldeterminewhethert
heaccountantmaypr ovi
det
hesecond
Opi
nions
opinionsought.

LevelofFees
5.
4-330Feesand
Conti
ngentFees
OtherTypesof
Referr
alFeesorCommi
ssi
ons
Remunerati
on
PurchaseorSal
eofaFi
rm

• Inmanyj uri
sdict
ions,t
herearelawsandregul
ati
ons,
suchast hoserel
atedtobri
beryandcor r
uption,thatprohi
bitt
he
5.5-340
off
e r
ingo raccept
ingofinducementsincer
tai
ncir
cumstances.Theprof
e ssi
onalaccountantshal
l obt
a i
na n
Inducements,
understandingofrel
evantlawsandregul
ati
onsandcomplywiththem whent heaccountantencounterssuch
Incl
udingGift
sand
cir
cums tances.
Hospital
it
y
• Aprofessionalaccount
antshallnotof
fer,
orencour ageot
herstooff
er,anyinducementt
hati
smade,orwhichthe
accountantconsider
sar easonabl
eandinformedt hir
dpart
ywouldbel i
kel
yt oconcl
udei
smade,wi
ththeintentt
o
i
mpr operl
yinfl
uencethebehaviourofthereci
pientorofanotheri
ndi
vidual
.
12
 • Aprofessi
onalaccountantshal
lnotaccept
,orencourageother
stoaccept
,anyinducementthattheaccount
ant
concl
udesismade, orconsider
sareasonableandinformedthi
rdpart
ywouldbelikel
ytoconcludeismade,wit
hthe
i
ntenttoimpr
operlyinf
luencethebehavi
ouroftherecipi
entorofanot
heri
ndivi
dual.

• Apr of
essi
onalaccountantshal
lremainal
ertt
opotenti
alt
hreatstot
heaccount
ant
’scompl i
ancewiththe
fundamentalpr
inci
plescreat
edbyt heof
fer
ingofaninducement:
a.Byani mmedi at
eorclosefami l
ymemberoftheaccountanttoanexi
sti
ngorpr
ospecti
veclientoft
heaccountant
.
b.Toani mmedi at
eorclosefami l
ymemberoftheaccountantbyanexi
sti
ngorprospect
ivecli
entoftheaccount
ant.

• Wher ethepr ofessionalaccount antbecomesawar eofani nducementbeingof fer

edt oormadebyani mmediateor
closefami lymemberandconcl udest hereisintenttoimpr operl
yinf
luencet hebehaviouroftheaccount
antorofan
existi
ngorpr ospecti
vecl i
entoft heaccount ant
, orconsidersareasonableandi nformedthir
dpartywouldbeli
kelyto
concludesuchi ntentexists,
theaccount antshalladvi
set heimmediateorcl osefamilymembernott ooff
eroraccept
theinducement .
• Apr ofessionalaccount antshallnotassumecust odyofclientmoneyorot herassetsunlesspermitt
edtodosobyl aw
5.
6-350Cust ody
andi naccor dancewi thanycondi t
ionsunderwhi chsuchcust odymaybet aken.
ofCl
ientAssets
• Aspar tofcl i
entandengagementaccept ancepr oceduresrelat
edtoassumi ngcustodyofcli
entmoneyorassets,a
professionalaccount antshall:
a.Makei nquiri
esaboutt hesour ceoft heassets;and
b.Consi derrelat
edl egalandregul ator
yobl i
gations

• Aprof
essionalaccountantentrustedwi t
hmoneyorot herasset
sbelongingtoothersshal
l:
a.Complywi t
ht helawsandr egul at
ionsr el
evanttohol
dingandaccount i
ngfortheassets;
b.Keeptheasset sseparat
elyf r
om per sonalorfir
m assets;
c.Usetheasset sonlyforthepur posef orwhichtheyareint
ended;and
d.Bereadyatal lt
imestoaccountf ortheassetsandanyi ncome,divi
dends,orgainsgenerat
ed,
toanyi
ndi
vidual
s
enti
tl
edtot hataccounti
ng.

13
6.Exam pr
act
icequest
ions

Questi
on1
Youareanaudi tpart
neratUZInc,asmal lauditfi
rm basedi nHar ar
e.Oneofyourbiggestcli
entsisJiggsPrivat
eLt
d( Ji
ggs)forwhom you
havebeendoi ngbookkeepi
ngandcompi l
ingfinancialstatementsforthepast5years.Ji
ggsrecentlygotri
dofthei
rauditorsforreasonst
hat
Jordan(theMDofJi ggs)saysar
e“ notreall
yimpor t
ant ”
,sohehasnowappr oachedyou( UZInc),t
obet henewauditorsofJiggs.Jordansays
thatsi
nceheknowsyousowel l,
hef eel
shecant rustyouwi ththeauditofhiscompany,andthatitshouldbeeasyanywaysi nceyouknow
everyt
hingthati
sgoingon.Jordanpr omisesthatshoul dyout akeJiggsasanauditcli
ent,hewil
lpayyout wiceasmuchashepayst he
bookkeepingservi
ce.Thismeansthatthet ot
alrevenuef rom Jiggswouldmakeupmor ethanhalfofUZI nc’
sannualrevenue.

Theonlythi
ngthatJordanrequi
resofyouisthatintheaudi
tedsetoffi
nanci
alstat
ements,
youadjusttheasset
ssot hatJi
ggscanappearto
haveahigherNetAssetValue.“Iknowyouwon’ tbeasstubbor
norstupidasthatl
astaudi
tor
,atl
eastyouknowbet t
erthantojeopar
dise
l
osingsuchabigfee–si ncewear eef
fect
ivel
ytwocl i
ent
sinone”,hesaystoyouwithachuckl
e(patt
ingyouont heback)

Requi
red
Basedont heI
nter
nati
onalCodeofEt
hicsf
orProf
essi
onalAccountant
s(2018)i
dent
if
ythr
eat
stocompl
iancewi
tht
hef
undament
alpr
inci
ples
anddiscusspossi
blesaf
eguardswhi
chcouldr
educethethr
eatstoaccept
ablel
evel
s.

Question2
TheInternati
onalCodeofEthicsforPr of
essionalAccount ants(2018)i dentif
iespossi bl
et hreatstot hefundamentalpri
ncipl
esofethi
cal
behaviourandsuggestssafeguardst oreduceorelimi nat
et hethreats.Consi derthef ol
lowingunr elatedsit
uati
ons
a.JohnBambohasbeent hepar tnerinchargeoft heaudi tofABCLt d, alist
edcompanyf orthepastni neyear s.
b.Dambar efuandCo,anaudi tf
ir
m, isaskedt oprovideinternalauditservicestoXYZLt d.XYZLt di snotanauditcli
entofDambar ef
uandCo
c.Dambar efuandCo,anaudi tf
ir
m, hasbeenr equest edbyoneoft heirclientstolendt hem at raineeaccountanttowor ki
nthei
raccount
ing
departmentforaperi
odoft hr
eemont hs
d.Dambar efuandCo,anaudi tf
ir
m, hasbeenappr oachedbyPQRLt d, alargeaudi tcli
enttor ecruitafi
nancialdir
ectoronthei
rbehalf

Required
Discusseachoftheabovesi tuati
onsi ntermsofpossibl
ethr
eatstothef undament alpri
nci
plesofethicalbehavi
ourasi
dent
if
iedi
nthe
I
nternati
onalCodeofEt hi
csforPr ofessi
onalAccountant
s(2018).Youranswershoul dbesetoutasf oll
ows:
Foreachoft hesi
tuati
onsabove
 Cat egor
yofthreat;
 Foreachcat egoryofthreat,i
dentif
icat
ionoff
undamentalprinci
plest hatcouldpossi
blybethreatened;
 Discussiononwhyt hesi t
uationcreatesathr
eat;
 Discussiononpossi bl
esafeguar dswhichcouldbeputinplacetor educeorel i
minat
et het
hreat.

14