Question

1. You have recently joined an established, medium sized firm of auditors as a junior
partner. Because of your knowledge of the relevant pronouncement, Sam Sandman, the
senior partner, discussed the following situations with you:

2. Your firm acts as auditors to Small Ltd and as financial advisers to Ben Big, one of
Its directors. Ben Big had instituted a legal action against the company for breach of
contract and has sought your firm’s advice relating to certain financial aspects
relating to Small Ltd. (5)

3. The chief accountant of Cruz Ltd, a public, but unlisted company, audited by your
firm, left unexpectedly. The company has asked your firm to maintain its accounting
records for the remaining three months of its financial year until they can appoint a
suitable accountant. (5)

4. Your firm acts as auditors to Rex (Pty) Ltd, a company required by its
Memorandum of Incorporation to be audited. Rex (Pty) Ltd has lent R5 million to
Blax (Pty) Ltd, a company of which Sam Sandman is the non- executive
chairman. (7)

5. Your firm has been approached by Calvin Ltd to provide a second opinion on
some financial information. Thorpe and Co, Calvin Ltd’s auditors provided the
original independent opinion but the directors of Calvin Ltd have indicated that
this was not the opinion they were expecting and hence have approached your
firm for the second opinion. The directors have also indicated that they do not
want your firm to contact Thorpe and Co and that as the opinion is required
urgently they will pay whatever fee your firm wishes to charge. (8)

Required:
Discuss each of the situations above in terms of the Code of Professional conduct. Include in
your answer the threats to professional conduct, threats to the fundamental principles and the
safeguards in the format as follows:

   Threat / Fundamental Principal / Safeguard

eg Self Review Threat / Objectivity / Audit is accountant

Answer 1