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AUDITING PROFESSION ACT AND THE
Transcript of AUDITING PROFESSION ACT AND THE
THE SAICA CODE OF PROFESSIONAL CONDUCT
AUDITING PROFESSION ACT
Who does the APA apply to?
- registered auditors completing audits of financial statements ONLY
Which sections are examinable?
- S1 Definitions: reportable irregularity
- S45 Auditor's duty to report irregularities
- S46 Liability of auditors
Any unlawful act or omission committed by any person responsible for management of an entity, which:
- has caused or is likely to cause material financial loss to the entity or to any partner, shareholder, creditor or investor of the entity in respect of his, her or its dealings with that entity; or
- is fraudulent or amounts to theft; or
- represents a material breach of fiduciary
duty owed by such person to the entity or any
partner, member, shareholder, creditor or investor of
the entity under any law applying to the entity of the
conduct or management thereof
A registered auditor who is satisfied or has reason to believe that a reportable irregularity has taken place or is taking place in respect of that entity must, without delay, send a written report to the Regulatory Board.
- report should give particulars of the irregularity
Within three days of sending the report, the auditor should notify the members of the board in writing, and attach a copy of the report
Within thirty days of sending the report, the auditor should:
- attempt to discuss the report with the members of
the manager's board of the company
- send another report to the Regulatory Boar
S46 LIMITATION OF LIABILITY OF AUDITORS
Auditor is not liable for any statement or report made, or opinion given, in the ordinary course of duties UNLESS it is proved that this was done maliciously, fraudulently, or pursuant to a negligent performance of the registered auditor's duties, AND the auditor
- knew, or should reasonably have known, at the time the negligence occurred, that the opinion, report or statement would used by a client to impact the actions of a third party OR that the third party would rely on the opinion, report or statement directly in the course of their actions; or
- in any way represented to a third party after the opinion was expressed or report/statement made that
such an opinion/report/statement was correct, while knowing that it would be
relied upon by the third party
HOW IS THIS DEFINITION DIFFERENT TO THAT IN THE COMPANIES REGULATIONS?
WHAT KINDS OF ACTIONS WILL BE REGARDED AS A REPORTABLE IRREGULARITY WRT AN AUDIT?
WHEN WILL YOU ADDRESS THIS SECTION IN AN EXAM AND HOW?
HOW ARE THESE ACTIONS DIFFERENT TO THOSE IN THE COMPANIES REGULATIONS?
WHEN WOULD YOU ADDRESS THIS SECTION IN AN EXAM AND HOW?
WHAT DO YOU NOTICE ABOUT THIS SECTION? DOES IT SEEM BROADLY APPLICABLE OR NOT?
WHEN WOULD YOU APPLY THIS SECTION IN AN EXAM?
SAICA CODE OF PROFESSIONAL CONDUCT
To whom does the CPC apply?
- chartered accountants in business
and in public practice
- slightly different depending on whether the CA is performing the audit
Understand the different sections and how to use them
STRUCTURE OF THE CODE
4 parts of the Code:
Part A - General application of the Code
Part B - Professional accountants in public practice
Part C - Professional accountants in business
Part D - not examinable
PART A: GENERAL
Covers sections 100- 150
S100 gives overview of the Code:
- introduces fundamental principles with which every CA must apply
- explains the 'conceptual framework approach' of the Code
- prescribes procedures for resolving conflicts of interest
PART B: CHARTERED ACCOUNTANTS IN PUBLIC PRACTICE
Gives details of how the conceptual framework should be applied in certain circumstances to CAs in public practice.
s200 introduces the concepts of threats and safeguards
-advocacy Gives examples of situations that create
- familiarity these threats
- firm-wide safeguards (should always be in place)
- engagement-specific safeguards
PART C: CHARTERED ACCOUNTANTS IN BUSINESS
Similar to Part B, EXCEPT that CA in business does not need to be independent, only objective
Same fundamental principles and same threats
Details on specific threats and possible safeguards with regards to the following:
- potential conflicts (S310)
- preparation and reporting of information (S320)
- acting with sufficient expertise (S330)
- financial interests (S340)
- inducements (S350)
S130 Professional competence and due care
S150 Professional behaviour
ETHICAL CONFLICT RESOLUTION
CA may be required to resolve a conflict in complying with the fundamental principles
1. Follow internal procedures
2. Consider whether to inform the board
3. Consider documenting the substance of the issue
4. Consider obtaining legal or regulatory advice, within bounds of confidentiality
5. IF ALL ELSE FAILS refuse in writing to be associated with the matter and consider whether to withdraw or resign
CONCEPTUAL FRAMEWORK APPROACH
1. Identify any potential threats to the
2. Evaluate threats to determine whether
they are at an acceptable level
3. Apply appropriate safeguards
4. If no safeguards sufficient, decline or
discontinue professional service
S210 PROFESSIONAL APPOINTMENT
Explains how the CA should approach the following to reduce threats to fundamental principles:
- client acceptance
- engagement acceptance
- changes in professional appointment
GENERAL THREATS AND SAFEGUARDS - DETAIL
s220 - S280 give examples of the kinds of threats and safeguards one would find with regards to the following:
- conflicts of interest (s220)
- second opinions (s230)
-fees and other types of remuneration (s240)
- marketing professional services (s250)
- gifts and hospitality (s260)
- custody of client assets (s270)
- objectivity (s280)
S290 covers independence of CAs in public practice
NOTE: CAs in business do NOT need to be independent, only those in public practice.
Gives examples of specific scenarios that create threats to Independence, and explain the safeguards (if any) that will reduce threats.
- financial interests (290.102 - 290.117)
- loans and guarantees (290.118 - 290.123)
- business relationships (290.124 - 290.126)
- family and personal relationships (290.127- 290.133)
-employment with an audit client (290.134-290.149)
- provision of non-assurance ervices to audit clients (290.156 - 290.199)
- fees (290.220 - 290.99 )
- gifts and hospitality (290.230)
CPC EXAM TECHNIQUE
Spot anyone who is a CA -> they will need to comply with the CPC
-> you will need to identify any threats and safeguards
-> these are part of 'corporate governance concerns'
What type of CA is the person?
There is a ___ threat to ___ as a result of ___. A possible safeguard would be___
Know where to find examples in the Code!
GENERAL EXAM TECHNIQUE
Understand the required!
'Statutory concerns' -> Companies Act
'Corporate governance concerns' -> APA, King III, Companies Act, CPC
'Concerns' -> what is wrong?
'Concerns and actions' -> what is wrong AND what do you need to do about it
(e.g. do you need to report anything ito APA?)
You are the auditor of a listed company. During the audit, you discover that the sales manager has been creating fictitious sales in order to increase profit and earn a bonus. The manager sits on the board of directors
- state any statutory concerns you may have, and what action you would need to take
Manager not meeting King III requirement to act in the best interests of the company. Thus, he is also in breach of s76 of the Companies Act.
Manager is in breach of S22 of the Companies Act, as his actions are fraudulent
Appears to meet the definition of a reportable irregularity, as it is an unlawful and fraudulent act carried on by a person responsible for the management of a company
ACTION: Report the irregularity in terms of S45 of the APA