1.

1 Auditing concepts
1.2 Regulation of the auditor
Lesson 1 1.3 Corporate governance

 Consists of three separate lessons

 The lesson mostly consists of AUE200 Revision
 Not necessary to refer to previous study guides
 Use the lesson as a blueprint of the sections that you should study
 Incorporate into your learning style. Strongly advise that you summarise
Lesson 1 topics if you have not done so in previous years
 Not necessary to memorise the section numbers
 No theory will be required
 Only application
How to approach the Lessons – start with the
lessons and follow through to study sources
Study tips and learning styles
Study tips
https://summer.harvard.edu/blog/top-10-study-tips-to-study-
like-a-harvard-student/

Learning styles
https://archive.blogs.harvard.edu/learnmegood/which-type-of-
learner-are-you-and-which-learning-style-fits-you-the-best/
Lesson 1.1 –
Auditing concepts
 These concepts are not new (Revision)

 Refer to the study sources and make sure

you understand the different concepts

 Theory not required but you need to

understand what they mean if we refer to
professional scepticism for example
Lesson 1.2 –
Regulation of the
auditor
 Consists of four sections:
 APA

 Companies Act (for TL102

only sections that apply to
the auditor)
 Ethics

 Quality control guidelines

Lesson 1.2 – Regulation of the auditor
 APA and Companies Act RI measurement if
there is reason to
 Certain sections to study - summarise believe:
1. Unlawful Act
 Assess by providing a practical scenario 2. Committed by
where you need to identify whether parties whom – management?
comply with APA and Companies Act 3. Caused or likely to
cause a financial loss
 Usually integrated with other topics OR
Is fraudulent or
 Reportable irregularities (RIs) section 45 – involves theft
self-assessment questions indicates an OR
Breach of fiduciary
approach to follow when answering questions duty
dealing with RIs 5.Conclude: RI or not
Lesson 1.2 – Regulation of the auditor
 Ethics topics consists of:
 General ethical considerations ito the core concepts – good
for self, good for others Integrity, objectivity,
 SAICA and IRBA Code of Professional Conduct (CPC) professional competence
and due care,
 Fundamental principles confidentiality and
professional behaviour
 Threats (Auditing Notes 2/5 – 2/8)
 Safeguards to eliminate or reduce the threat
 King IV Self-interest threat,
Self-review threat,
 All of the above assessed through case studies (practical Advocacy threat,
scenarios). It is therefore important to analyse the required VERY Familiarity threat,
CAREFULLY. Intimidation threat
(Auditing Notes 2/8 – 2/9)
Lesson 1.2 – Regulation of the auditor
 Exam technique: When addressing a question relating to ethics, be on
the look out for the following:
 Is there limitations in the question, for example:
 When it refers to ethical considerations in general, you will answer
the question in terms of all the codes or ethical standards
 Is the question limited to the SAICA CPC only, and if so
 Does it enquire you to address the fundamentals, threats and
safeguards? If it does not specify, you will address all three
components.
 In terms of the required, see whether the question applies to a CA or a
registered auditor (RA). This will give you an indication of whether or
not the SAICA or IRBA CPC applies.
 Is King IV excluded or are you only required to address a specific
component?
Lesson 1.2 –
Regulation of the
auditor
 Quality control guidelines for audit
firms and audits
 ISQM 1 – audit firms
 ISA 220 (Revised) – auditors
(engagement team)

 Not required to have technical

expertise of these standards –
awareness and identify whether they
comply or not ito the guidelines
 Lesson 1.3 – King IV Report
on Corporate Governance in
South Africa

 Refer to study sections and revision

 Assessment: Integrated with other topics
in a practical scenario
 Know the theory to identify non-
compliance or evaluate the lack of good
corporate governance
 Exam technique:
 JSE listed companies need to comply with
King IV but if a scenario indicates that the
company adheres to good corporate
governance, you may assume that they
follow King IV practices.
 Read the required carefully (Is King IV
excluded or not)
Ethics - Good for self, Good, fair for self and
others
good for other Honesty, no harm etc.
principle

Self = own’s
interest Other = Stakeholders
- Individuals - Shareholders
- Company - Investors
- Professional - Employees
- Suppliers and consumers
- Local community
- Government
- Etc
Source: Rossouw & Van Vuuren, 2017:5
Ethics - Code of Professional Conduct

International Code of Ethics for

Professional Accountants

SAICA Code of Professional IRBA Code of

Conduct Professional Conduct
Ethics – SAICA CPC

Applies to
every CA(SA)

Applies to CAs(SA) in
firms that provide
professional services
in respect of clients

Applies to CAs(SA)
offering assurance
Applies to every engagements in
CA(SA) in respect of
respect of their independence from
employer their clients
Ethics – IRBA Code of Professional Conduct

Applies to all
Registered Auditors
(RAs).
The same as the
SAICA CPC but does
not include Part 2.
SAICA and IRBA CPC – Fundamental principles

Integrity • Straightforward and honest

(Section 111)

Objectivity • Do not compromise judgements because of bias, conflict of interest or

undue influence of others
(Section 112)

Professional competence • Attain and maintain professional knowledge and skill at the level
and due care required for a competent professional service; and
• Act diligently and in accordance with applicable standards
(Section 113)

Confidentiality • Respect the confidentiality of information acquired in professional

and business relationships
(Section 114)

• Comply with relevant laws and regulations; and

Professional behaviour • Avoid conduct that you know or should know might discredit the
(Section 115) profession
SAICA and IRBA CPC – Threats (Section 120)

Self-review threat
Advocacy threat
Self-interest threat Not able to review results/activity
Risk that the client’s position will be
appropriately on which reliance
Financial or any other interest will should be placed promoted and thereby compromise
influence judgement or behaviour objectivity
Example: have shares in the client
(won’t be able to be objective)
Example: involved in negotiating contracts for
Example: you were involved in designing the client
internal controls in the client

Intimidation threat
Familiarity threat
Risk of not being objective because
Influence of a close or long of actual or perceived pressure or
relationship on your work attempts to exercise undue influence
Example: Family relationship exist Example: threatened with dismissal of the audit
firm
SAICA and IRBA CPC – Conceptual Framework

Source: Winfield, J. 2024. Code of Professional Conduct Refresher. SAICA webinar.

King IV Report on Corporate Governance in
South Africa The structure
that is
 What is corporate governance? accountable for
 It is the exercise of ethical and effective leadership by the governing the organisation
body towards the achievement of the following outcomes: - Directors for
example
 Ethical culture
 Good performance
 Effective control
 Legitimacy
 Who should comply?
 Legislated or voluntary
 Apply and explain
King IV Report – The governing body’s
primary governance role and responsibilities

Source: King IV Report on Governance for South Africa 2016

 King IV Report –
Philosophies

Source: King IV Report on Governance for South Africa 2016

Relationship between governance outcomes, Extract from Part 5 as an example
principles and practices

Source: King IV Report on Governance for South Africa 2016

Practical question on topics
in Lesson 1
Go to menti.com
Who is Frank?
CA(SA) / RA?
 1 mark for
Required (a) each correct
answer
 Comment on the instruction given to the audit team not to ignore the
phone call and not to discuss it with anyone at Leisure Travel Ltd.
(4)
 In terms of “not to ignore the phone call”
 The APA requires you to investigate potential irregularities
 In terms of “not to discuss it”
 You don’t have enough information yet and don’t want to alert
the perpetrators (they will have time to hide the evidence)
 Conclude: The instruction is the right thing to do, and you first need
to obtain more evidence
Required (b)
 Identify the procedures your team would have carried out in their attempt to
gather evidence to support the allegation made by the whistleblower.
(4)

 Extract a sample of bookings

 Compare hotel bookings with client bookings
 Confirm the specifications
 Contact the hotels and confirm bookings
 Perform system tests by doing an actual booking
 Enquire whether employees experience system errors

4 answers x 1 mark = 4 marks

Required (c)
 Discuss fully whether the situation described above constitutes a
reportable irregularity in terms of the Auditing Profession Act RI measurement if
2005. (12) there is reason to
believe:
1. Unlawful Act
 Ask yourself: 2. Committed by
whom – management?
 Is there a “reason to believe” that there is a RI? Why? Motivate your
3. Caused or likely to
answer.
cause a financial loss
 Motivate whether or not it is a RI by measuring it against the OR
definition. Remember no marks for theory. Is fraudulent or
 Make sure you conclude. You always need to conclude. involves theft
OR
Breach of fiduciary
duty
5.Conclude: RI or not

12 answers x 1 mark = 12 marks

Required (d)
 Discuss Frank Abagnale’s threat to “fire” your firm from the appointment of
auditor with immediate effect. (8)
 In your thought process, apply your knowledge to the theory and consider:
 Should this intimidate the audit team?
 Can auditors be fired?
 When/where and by whom are auditors appointed and does Frank have the right to
do so?
 Can auditors object this?
 How does the fact that a RI was identified impact auditors if they are not
reappointed?

8 answers x 1 mark = 8 marks

Required (e): relates to Companies Act Section 159 which will be dealt with later
in your studies. Remember to refer back to this question in that point of time.
Additional question
 An additional practise question dealing with ethics are
uploaded under today’s discussion link and material folder
on myUnisa. The solution will be shared during next week.