You have recently joined an established, medium-sized firm of auditors as a junior partner. Because of your

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Question:

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

1. Ken Kildair, the partner in charge of your firm's tax department, has recently notified Sam Sandman that his daughter Kate Kildair has taken up a middle management position in the corporate finance section at AgriSpec Ltd, one of your firms audit clients. Ken Kildair is not part of the audit team, but any tax matters with audit implications are referred to him. AgriSpec Ltd's corporate finance section is not part of the accounting department and does not play any role in day to day accounting matters. Sam Sandman has requested your opinion whether the appointment of Kate Kildair poses any threat to your firm's compliance with the Code of Professional Conduct. (6)

2. The chief accountant of Cruz Ltd, a public, but unlisted company audited by your firm, left unexpectedly. The financial director has asked your firm to take control of the accounting function for the remaining three months of its financial year as this will give it time to appoint a suitable chief accountant. The company has requested that Varinda Saywag the manager on the audit of Cruz Ltd, be temporarily assigned for the three month period. Sam Sandman has asked your opinion on whether, in terms of the COPC, the firm could agree to Cruz (Pty) Ltd's request. (7)

3. Your firm acts as auditors of Rexx (Pty) Ltd. Recently Rexx (Pty) Ltd received a loan of R5 million from Poziers (Pty) Ltd. As the loan is material, the board of directors of Poziers (Pty) Ltd, of which Sam Sandman (your firm's senior partner) is the non- executive chairman, approved the loan. Terms and conditions of the loan are market related and the loan was made to assist Rexx (Pty) Ltd with financing an expansion programme. Rexx (Pty) Ltd and Poziers (Pty) Ltd are not connected in any way and they both operate in the light industrial sector. Although the transaction has taken place, Sam Sandman is now concerned that he may not be in compliance with the COPC and has asked your opinion. (7)

4. 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. (10)

REQUIRED:

Discuss each of the situations described above in terms of the Code of Professional Conduct. Identify the category of the threat and the threat to the fundamental principle as well as the safe guards.