Group Assignment MEMO

Example Is it significant? Type of Threat? Fundamental Principles threatened Safeguards to reduce/eliminate threat
MARKING: 1 mark – if YES 1 mark/threat 1 mark per principle 1 mark for any one safeguard mentioned
below.
Joe Soap, an audit Partner at Yes – most likely as this Self-interest Objectivity, Integrity, Professional 1. A policy within the audit firm which prohibits
an audit firm, owns 25% of is a quarter of the total Threat Behaviour (Joe Soap may overlook partners and employees from holding shares
one of his audit clients, Ship- shares issued, indicating issues that arise on audit to protect his in an assurance client. (The audit partner
Shape (Pty) Ltd. a significant investment. investment) should dispose of his investment)
2. A procedure for monitoring this prohibition
and a disciplinary follow up for transgressors
XYZ & Partners audit firm has Yes – 50% of its total Self-interest Objectivity, Integrity (The firm has 1. Discussing the risk with those charged
an audit client that makes up annual revenue Threat undue dependence on the total fees with governance, disclosing the nature,
50% of its total annual from this client. When risking to lose the extent of services and fees charged
revenue. (Part of the fees are client, the firm’s integrity, objectivity 2. Involving another firm to perform/re-
earned from 2 non-assurance and independence may be affected) perform part of the engagement.
engagements and 1 3. Using different partners and
assurance engagement) engagement teas with separate
reporting lines to do one engagement
only.
The director of High-Shine Yes – was director of Self-review Objectivity, Professional Competence & 1. Rotating the Partner unto another audit
(Pty) Ltd was head hunted by High-Shine, i.e. he was threat due care, Integrity (Being a previous client.
Jospeh & Partners auditing in a position to exert director of High-Shine he may not be 2. Implementing policies requiring
firm. He resigned during 2013 significant influence objective enough for the purpose of the compliance with fundamental principles,
and started working as the over the company, engagement, and in exercising his and procedures/actions to address
engagement partner of the where now he is the judgment may not be acting with due identified threats to such.
audit of High-Shine (Pty) Ltd Audit Partner of High- care since he is too familiar with the
in 2014 due to his extensive Shine, can influence the information)
experience on this client. outcome of the
engagement.
Apple (Pty) Ltd was charged Yes – the fact that the Advocacy threat Objectivity, Professional Behavior, 1. (a)
by the Tax Authority on audit client is accused of Integrity, Confidentiality (Joseph & A firm policy that a partner independent of
misrepresenting tax returns such a nature of a Partners’ objectivity may be the client (Apple) handle the litigation.
to the Receiver of Revenue. crime, and Joseph & compromised, further if legal 1. (b)
Apple (Pty) Ltd is an audit Partners is in a position procedures to disclose confidential A firm policy which limits the non-assurance
client of Joseph & Partners. to compromise their matters were not followed, the services offered to assurance clients to only
Apple (Pty) Ltd requested the objectivity. confidentiality of client information is those which carry a minimal threat of no-
audit partner of Apple (Pty) also compromised. This also affects compliance with the fundamental principles.
Ltd of Joseph & Partners to their professional behavior)
represent their case, which is
scheduled to be held on 22
April 2014.
Joseph & Partners’ audit Yes – the circumstances Intimidation Objectivity, Professional Competence 1. A review of the work carried out on the
client, Red Law (Pty) Ltd, of the fee reduction Threat and due care and Integrity. (To retain audit by a partner independent of the
pressured the firm to reduce may need to be further the audit Joseph & Partners may client.
its audit fees by 30% evaluated, but with no compromise on standards e.g. do 2. Quality control procedures within the
otherwise they will resign as further evidence we insufficient audit work, and fail to follow firm which review the desirability of
audit client. assume it to be up on problems which they are fully continuing professional relationships
significant as the client aware should be followed up, so as not with the firms’ clients.
is threatening to leave to go “over budget” on the reduced 3. Raising the matter with the audit
the audit firm. fee.) committee and/or other governance
structures.
XYZ & Partners audit firm has CANCELLED
an audit client that makes up
60% of its total annual
revenue.
TOTAL 5 possible marks 5 possible marks 15 possible marks 12 possible marks
TOTAL POSSIBLE MARKS OUT OF 37!