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.
