SAICA CPC Flashcards
Threats to fundamental principles
Intimidation
advocacy
self-interest
self-review
familiarity
Fundamental principles
- Integrity
- Honesty
- Correcting any mistakes and disassociating from incorrect info - Professional Competence and due care
- appropriate training & supervision
- aware of your limitations
- Avoiding engagements that you are not competent to perform - Objectivity
- Trying to remove bias or removing yourself from situations that can influence you - Confidentiality
-to respect information acquired as a result of professional & business relationships
-Avoiding inadvertent disclosure, including in a social environment
- Exceptions= permitted/required by law or authorised by client OR professional duty or right to disclose if not prohibited by law - Professional behaviour
- Comply with relevant laws & regulations
- Multiple Firms
- Signing convention of reports
Qualitative and Quantitative factors
Qualitative- The actual factual issue/ threat
Quantitative- The significance that person plays in the role threatening fundamental principles
Professional accountants
Types
1. In business
2. In public practice
Qualifications:
1. CA (SA)
2. AGA (SA)
3. ATA (SA)
Answering Guideline: Part 1
- Conceptual framework-
- Identify If a PA
- Identify what part of CPC is being threatened - Identify threats-
- Identify fundamental principles-
-Then explain principles
- Identify exceptions then restate whether they are applicable - Evaluate level of threats-
- Qualitative
- Quantitative - Conclude whether level of threat is acceptable then implement safeguards
- Eliminate circumstances
-Apply safeguards
-Decline/end professional activity
Preparation and presentation (220)
Fundamental principles:
-Integrity, objectivity, professional -competence and due care
Threats:
-Self-interest
-Intimidation
Factors:
-Don’t mislead nor influence contractual; or regulatory outcomes inappropriately
-Don’t omit information to mislead
-Undue influence or undue reliance on individuals, organisations or tech
Safeguards:
-Supervision
-Refusal to remain associated/ resignation
-Independent review
-Have policies and procedure
Pressure to breach contract (270)
Internal and external
OR you pressure or someone pressure you
Fundamental principles:
-Integrity
-Professional competence and due care
Threats:
-Self-interest
-Intimidation
Factors:
-Individual intention
-Application of laws, regulations and professional standards
-Culture and leadership
-Policies and procedures
Safeguards:
-Discuss with supervisor, SAICA and the person
-Policies
Financial Interest(240)
Fundamental principles:
-Self-interest
-Familiarity
Threats:
-Confidentiality
-Objectivity
Factors:
-Significance of financial interest
-Policies and procedures set by independent management
- Disclosure
Safeguards:
Reduce or dispose of interest
-Disclose
-Independent oversight
-Reduce significance or resign
Conflict of interest (210)(310)
Fundamental Principles:
-Objectivity
-Professional competence and due care
Threat:
-Self-Interest Threat
Factors:
-Nature of relevant parties
-activity and implication for relevant parties
Safeguards:
-Withdraw
-Segregation of responsibility
-Oversight or review
Acting with Insufficient expertise(230)
Fundamental Principles:
-Professional competence and due care
Threat:
-Self-interest
Factors:
-sufficient time
-Incomplete, restricted or partial audit/ assurance
-Training
-Resources
-Extent of working with others
-Seniority
-Supervision and review
Safeguards:
-Training
-Supervision
-Assistance
-Review
Gifts and Inducements (250)(340)(420)
Consideration:
Intention- Influence in a negative or positive manner
Fundamental:
-Integrity
-Objectivity
-Professional behaviour and due care
Threats:
-Self Interest
-Familiarity
-Intimidation
Factors:
-Nature, frequency and value
-Timing relative to any action
-Customary/ Cultural practice
-Reputation of offeror
-Degree of transparency
Safeguards:
-Policies
-Disclosure
-Decline gift
-Donate or terminate business relationship
Custody(350)
Taking custody of clients assets
Fundamental Principles:
-Professional behaviour and due care
Threat:
-Self-Interest
Factors:
-legal= legal requirements, disclosure procedures
-Whether money is kept separate from firm and personal activities
-Used as intended by the client
-Ability to account for the money
-Laws and regulations
Safeguards:
-Subjective
Professional Acceptance(320): Clients involved in illegal, dishonest or questionable financial practices
Fundamental Principles:
-Integrity
-Professional competence and due care
Threat:
-Self-Interest
Factors:
-Knowledge of clients, owners or management behaviour
-Client’s general commitment to addressing questionable issues
-The nature of the client’s business;
-The complexity of its operations;
-The requirements of the engagement; and
-The purpose, nature and scope of the work to be performed.
Safeguards:
-Make sure you are informed
-Awareness of their commitment
-Speaking to the predecessor about them leaving
-Getting permission from client to get past information
Don’t/ can’t acquire competencies to perform service:
Fundamental Principles:
-Professional competence and due care
Threat:
-Self-interest
Factors:
-Understanding the nature, complexity, requirements and purpose and scope of work
-Knowledge of industry
-Regulatory or reporting requirements
-Quality control policies and procedures
Safeguards:
-Training/ Time
-Get expertise
-Resign
-Review work
Second opinion(321)
Fundamental Principles:
-Professional competence and due care
Threat:
-Self Review
Factors:
-Permission
-All available facts and assumptions
Safeguards:
-Permission from the client to obtain all info
-Limitations surrounding the second audit
-Appropriate review
Contigent Fee(330)(410)
-Contingent fees are used for certain types of non-assurance services
-PA in public practice shall not charge contingent fees for the preparation of an original or amended tax return
Fundamental Principles:
-Integrity
-objectivity
Threat:
-Self-interest
Factors:
-Nature
-Basis of fee
-Disclosure
-Quality management policies
Safeguards:
-Review
-Agreement
Financial interest: (510)
Fundamental principle:
-Objectivity
-Integrity
Threat:
-Self-Interest
Factors:
-Nature and size of interest
-Influence on audit
-Indirect or direct financial interest
-Materiality of financial interest
Safeguards:
-Dispose
-Reduce
-Withdraw from audit
-Review
Family and personal relationships: (521)
Immediate family:
Immediate family of an audit team member
Ability to exert significant influence over clients’ financial position/ performance
Fundamental principle:
-Objectivity
-Integrity
Threat:
-Self-interest
-familiarity
-Intimidation
Factors:
-Position of family member vs role on audit
Safeguards:
-Remove from audit
-Restructure responsibility to remove link
*close family= add nature of relationship of factors
Recent services with audit client: Moved from client company to audit company
Fundamental principle:
-Objectivity
-Integrity
Threat:
-Intimidation
-Self-interest
-Self-review
Factors:
-Position at clients
-Position at audit
-Time difference
Safeguards:
-Removal from audit
-Review
Employment with audit client:(524)
Fundamental principle:
-Objectivity
-Independence
-Integrity
Threat:
-Intimidation
-Self-interest
-Familiarity
Factors:
-Position at clients
-Position at audit
-Time difference
Safeguards:
-Review
-Modify audit plan
-Introduce more experienced auditors
Temporary personnel assignments(525):
Fundamental Principles:
-Objectivity
-Integrity
Threats:
-Self review
-Advocacy
-Familiarity
Factors: Also requirements
-Less than 6 months
-No management responsibilities
-position doesn’t threaten independence
-No work prohibited by cycle
Safeguards:
-Short period
-Review
-Re-organise audit
Director of client and also work at audit firm:
NOT ALLOWED
Can serve as secretary:
1. Permitted by law
2. Management makes all relevant decisions
3. Perform relevant duties and activities
Non-assurance services (600)
Fundamental principles:
-objectivity
-integrity
Threats:
-Self-interest
-Self-review
-Advocacy
Factors:
-Type of client (audit client, public interest, etc.)
-Type of non-assurance services to be provided (e.g. tax services)
-Who provides the non-assurance service (part of audit team?)
-The extent to which the non-assurance service impacts the financial
statements and internal controls
-The level of expertise of the client’s employees concerning the service provided
Safeguards:
-Review
-Source documents must be prepared by client
-Separate assurance and non-assurance teams
-Obtain pre-clearances of the outcome
Compensation and evaluation (411)
-When an audit team member for a particular audit client is compensated for selling non-assurance services to that audit client
Fundamental principle(s):
-Professional competence and due care
Threat(s):
-Self interest
Evaluate the level of threat: Factors
-What proportion of the compensation or evaluation is based on the sale of such services;
-The role of the individual on the audit team; and
-Whether the sale of such non-assurance services influences promotion decisions.
Address the threats: Safeguards
-Revising the compensation plan or evaluation process for that individual.
-Removing that individual from the audit team.
-appropriate review
Litigation (430)
Fundamental principle(s):
-independence
Threat(s):
-Self-interest
-Intimidation threats
Evaluate the level of threat: Factors:
-The materiality of the litigation.
-Whether the litigation relates to a prior audit engagement.
Address the threats: Safeguards:
-Review
-If the litigation involves an audit team member removing that individual from the audit team.
Loans and Guarantees(511)
A firm, a network firm, an audit team member, or any of that individual’s im- mediate family shall not make or guarantee a loan to an audit client or any direct- ors or officer of an audit client, unless the loan or guarantee is immaterial to: the network firm or client
Fundamental principle(s):
-Independence.
Threat(s):
-Self interest
Evaluate the level of threat: Factors:
-Under normal lending procedures (The loan might create a self-interest threat if it is material to the audit client or firm receiving the loan.)
Address the threats: Safeguards:
-appropriate reviewer
Family and Personal relationships(521)
Fundamental principle(s):
independence.
Threat(s):
-Self-interest
-Intimidation threat
Evaluate the level of threat: Factors:
-Materiality/ significance of relationship
-Firm, Network Firm, Audit Team Member or Immediate Family Business Relationships
Address the threats: Safeguards:
LOANS and GUARANTEES(511)
A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not accept a loan from, or have a borrowing guaranteed by, an audit client that is not a bank or similar institution unless immaterial
Fundamental principle(s):
-Independence
Threat(s):
-Self-interest
-Intimidation threat
Evaluate the level of threat: Factors:
-The materiality of the financial interest and,
-The significance of the business relationship.
Address the threats: Safeguards:
-Appropriate reviewer
-Eliminating or reducing the magnitude of the transaction.
-Removing the individual from the audit team.
Long association with client(540)
Fundamental principle(s):
-Independence
Threat(s):
-Familiarity
-Self-interest
Evaluate the level of threat: Factors:
-Nature, frequency and extent of integration with management
-Individual closeness with management
-Seniority
-Supervision
Address the threats: Safeguards:
-Review
-Quality control
-Remove from audit
-More seniors to supervise
Business relationships(510)
This section contains references to the “materiality” of a financial interest and the “significance” of a business relationship. In determining whether such a financial interest is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account.
Fundamental principle(s):
-Independence
Threat(s):
-Self-interest
-Independence
Evaluate the level of threat: Factors:
-The materiality of the financial interest and,
-The significance of the business relationship.
Address the threats: Safeguards:
-Reviewer
-Remove individual
-Reduce individuals role
