Question 3 (24 marks)

It is obvious that registered auditors have the knowledge and skills to perform their function and that they should be totally honest. However, there are a number of other attributes or fundamental principles of ethical behaviour, which all auditors should have/comply with and these are identified in various international pronouncements as follows; the auditor should: (i) act with integrity (ii) act objectively (iii) act with professional competence and due care (iv) respect the principle of confidentiality (v) embrace professional behaviour. The following actions taken by registered auditors are examples of non-compliance with one or more of the principles listed above:

1. Peter Boston the registered auditor in charge of the Milkmaid (Pty) Ltd audit, made racist comments concerning the clients staff during an audit planning session. (2)

2. Preggy Pillay the registered auditor in charge of the audit of Rosebeds (Pty) Ltd, charged the client a fee for audit procedures which he knew had not actually been carried out. (2)

3. Fred Feathers the registered auditor in charge of the audit of Impendle (Pty) Ltd, failed to identify the misapplication by the client of an important accounting policy. The misapplication resulted in a material overstatement of the companys profit. (2)

4. Julius Zuma a registered auditor, arranged with some of his clients to pay the fees which he charged for his services, in cash. Any client agreeing to do so, was not charged VAT and was given a substantial discount. (5)

5. During the planning stage of the audit of Marketvest (Pty) Ltd, a company which invests money on behalf of its clients, Rocky Ranchod the registered auditor in charge of the audit, was given access to the investment strategy which the company intended to adopt. Rocky Ranchod noted the listed shares which Marketvest (Pty) Ltd intended to purchase and instructed his own stockbroker to immediately purchase a number of these shares for Rocky Ranchods family (3)

6. As the budget for the audit of Redbands Ltd would be exceeded and because he felt he had a competent audit team, Axel Mkize the registered auditor in charge of the audit, decided not to spend the necessary time on reviewing the workpapers of the audit team. (3)

YOU ARE REQUIRED TO: a) briefly explain each of the attributes or fundamental principles of ethical behavior listed above (i) to (v). (7) b) identify with a brief explanation, which of the fundamental principles have not been complied with in each of the situations described in i. to vi. above. (17) Note: A single action may amount to non-compliance with more than one principle. 5.3 (22 marks 26 minutes)