QUESTION TWO [25] You have recently joined an established, medium sized firm of auditors as a junior partner. Because of your knowledge of the relevant pronouncement, Sam Sandman, the senior partner, discussed the following situations with you:

2. Your firm acts as auditors to Small Ltd and as financial advisers to Ben Big, one of Its directors. Ben Big had instituted a legal action against the company for breach of contract and has sought your firms advice relating to certain financial aspects relating to Small Ltd. (5)

3. The chief accountant of Cruz Ltd, a public, but unlisted company, audited by your firm, left unexpectedly. The company has asked your firm to maintain its accounting records for the remaining three months of its financial year until they can appoint a suitable accountant. (5)

4. Your firm acts as auditors to Rex (Pty) Ltd, a company required by its Memorandum of Incorporation to be audited. Rex (Pty) Ltd has lent R5 million to Blax (Pty) Ltd, a company of which Sam Sandman is the non- executive chairman. (7)

5. Your firm has been approached by Calvin Ltd to provide a second opinion on some financial information. Thorpe and Co, Calvin Ltds 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. (8)

Required: Discuss each of the situations above in terms of the Code of Professional conduct. Include in your answer the threats to professional conduct, threats to the fundamental principles and the safeguards in the format as follows:

Threat / Fundamental Principal / Safeguard

eg Self Review Threat / Objectivity / Audit is accountant