Auditing 288 > A2S2 2025 > Flashcards

A2S2 2025 Flashcards

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1
Q

Independence Threat: Financial Interests (Owning Shares)

A

Scenario: Auditor, manager, or family owns shares in client.

Threats: Self-interest.

Principles: Independence → Objectivity & Integrity.

Factors: Role (partner vs trainee); direct vs indirect; materiality; type of investment.

Applications: Partner holds shares (senior); direct interest; material (30% of portfolio); influence over audit.

Safeguards: Dispose shares; remove person; independent review.

Conclusion: Threat not at acceptable level; remove individual or dispose of shares.

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2
Q

Independence Threat: Long Association / Familiarity

A

Scenario: Same partner or manager audits client for many years or close relationship with management.

Threats: Familiarity & Self-interest.

Principles: Independence → Objectivity & Integrity.

Factors: Length; seniority; extent of review; closeness.

Applications: Partner 9 years; not reviewed by others; high influence; frequent contact.

Safeguards: Partner rotation; cold review; independent partner.

Conclusion: Threat not at acceptable level; rotation or review required.

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3
Q

Confidentiality Breach

A

Scenario: Accountant discloses confidential info to third party or friend.

Threats: Self-interest.

Principles: Confidentiality & Professional Behaviour.

Factors: Harm to parties; info public or speculative; formality; appropriateness of recipient.

Applications: Harmed employer; draft info; casual social disclosure; inappropriate recipient.

Safeguards: Do not disclose; get authorisation; seek legal advice.

Conclusion: Threat not acceptable; info must not have been disclosed.

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4
Q

Inducements (Gifts & Hospitality)

A

Scenario: Auditor offered expensive gift or hospitality (e.g., luxury weekend).

Threats: Self-interest & Intimidation.

Principles: Independence → Objectivity & Integrity; Professional Behaviour.

Factors: Value/frequency; timing; transparency; roles of giver/receiver.

Applications: R60 000 weekend; during audit; secret offer; CFO → partner.

Safeguards: Decline offer; disclose; discuss with firm; remove from engagement.

Conclusion: Threat not acceptable; decline offer.

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5
Q

Fee Dependency

A

Scenario: One client = major % of firm’s income (>15% listed, >50% others).

Threats: Self-interest & Intimidation.

Principles: Independence → Objectivity & Integrity.

Factors: Firm size/diversity; client significance; duration of dependence; firm structure.

Applications: Small firm; 50% fees; long-term dependence; pressure to please client.

Safeguards: Independent review; disclose; diversify clients.

Conclusion: Threat not acceptable; pre-issuance review required.

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6
Q

Self-Review Threat (Non-Assurance Services)

A

Scenario: Firm provides valuation/tax/accounting/internal control services for audit client.

Threats: Self-review (primary), Self-interest.

Principles: Independence → Objectivity & Integrity.

Factors: Subjectivity; materiality; client expertise; FS impact.

Applications: Valuation subjective; material item; client expert reviews; affects FS.

Safeguards: Separate team; independent partner review; no management decisions.

Conclusion: Threat not acceptable; separate team & review needed

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7
Q

Preparation of Accounting Records

A

Scenario: Audit firm helps prepare FS or accounting records.

Threat: Self-review.

Principles: Independence → Objectivity & Integrity.

Rule: Listed = prohibited; Non-listed = allowed only if safeguards.

Factors: Entity type; client expertise; complexity; involvement.

Applications: Non-listed; management lacks skill; complex transactions; manager reviews work.

Safeguards: Client accepts responsibility; has expertise; firm not act as management.

Conclusion: Listed = prohibited; Non-listed = allowed only with safeguards.

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8
Q

Actual or Threatened Litigation

A

Scenario: Client suing auditor or vice versa.

Threats: Intimidation & Self-interest.

Principles: Independence → Objectivity & Integrity.

Factors: Materiality; period; nature; actual vs threatened.

Applications: R2m material; current-year; negligence claim; active lawsuit.

Safeguards: Remove person; independent review; terminate engagement.

Conclusion: Threat not acceptable; remove individual from team.

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9
Q

Conflict of Interest

A

Scenario: Accountant serves two competing interests (e.g., father shareholder) or firm has opposing clients.

Threat: Self-interest.

Principles: Objectivity & Professional Behaviour.

Factors: Nature of relationship; activity; significance; safeguards.

Applications: Father sole shareholder; FS preparation; significant impact; no oversight.

Safeguards: Disclose conflict; separate teams; Chinese walls; withdraw.

Conclusion: Threat not acceptable; disclose or resign.

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10
Q

Professional Competence and Due Care

A

Scenario: Accountant accepts work beyond expertise or fails to update knowledge.

Principle affected: Professional Competence & Due Care.

Factors: Understanding of client; industry knowledge; experience; quality control policies.

Applications: No valuation experience; unfamiliar with AI systems; lacks IFRS 15 knowledge; poor QC controls.

Safeguards: Assign experts; training; realistic timing; use specialist.

Conclusion: Accepting job breaches Competence & Due Care; must use expert or decline.

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11
Q

Perfect opening line for any ethics answer?

A

“Application of the SAICA Code of Professional Conduct — [Name] is registered with SAICA as a [CA(SA)/PA in practice/in business] and must therefore comply with Parts [1, 2, 3, 4A] of the Code.”

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12
Q

Sentence to identify a threat?

A

“A [specific threat] arises for [principle] because [reason from case].”

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13
Q

How to show threat is serious?

A

“The level of the threat is not at an acceptable level as independence and objectivity may be compromised.”

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14
Q

Line introducing general factors?

A

“The following factors must be considered in evaluating the level of the threat:”

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15
Q

4 factors usable in any answer?

A

1️⃣ Role/seniority.
2️⃣ Length/closeness.
3️⃣ Materiality.
4️⃣ Review by others

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16
Q

Phrase introducing applications?

A

“In this case:”

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17
Q

Structure for 4 applications?

A

[Name] is [role].

This creates [risk].

[Fact].

Therefore, threat increases.

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18
Q

Line introducing safeguards?

A

“Safeguards such as [rotation/review/disclosure/removal] may reduce the threat to an acceptable level.”

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19
Q

Perfect conclusion line?

A

“Therefore, the level of the threat is not at an acceptable level, and appropriate safeguards must be implemented.”

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20
Q

Five fundamental principles?

A

Integrity, Objectivity, Professional Competence & Due Care, Confidentiality, Professional Behaviour

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21
Q

Phrase for professional behaviour breaches?

A

“The conduct is discreditable to the profession and breaches Professional Behaviour.”

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22
Q

Phrase for By-law contraventions?

A

“The member breached SAICA By-laws 4.1.7 (Code non-compliance) and 4.2.6 (discreditable conduct).”

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23
Q

Phrase for competence breaches?

A

“The member failed to maintain Professional Competence and Due Care by accepting work beyond their expertise.”

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24
Q

When no safeguard can fix?

A

“No safeguards can reduce threat; the only option is to decline or withdraw from engagement.”

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25
Independence definition phrase?
“Independence comprises independence of mind and independence in appearance; both must be maintained.”
26
Disclosure rule phrase?
“Confidential info may only be disclosed with authority or where there is a legal/professional duty.”
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Inducement phrase?
“An inducement is acceptable only if trivial and inconsequential; otherwise, it creates a self-interest/intimidation threat.”
28
Litigation phrase?
“Litigation between auditor and client creates an adversarial relationship and an intimidation threat.”
29
Final closing line?
“In conclusion, based on the SAICA Code, the level of threat is not acceptable, and safeguards or withdrawal are required.”
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S110 – Integrity
Be straightforward and honest in all professional and business relationships.
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S111 – Objectivity
Do not allow bias, conflict of interest, or undue influence to override professional judgment.
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S113 – Professional Competence and Due Care
Maintain professional knowledge and act diligently according to technical and professional standards.
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S114 – Confidentiality
Do not disclose information without authority unless required by law.
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S115 – Professional Behaviour
Comply with laws/regulations and avoid any conduct discreditable to the profession.
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S510 – Financial Interests
Owning shares in a client creates a self-interest threat to independence.
36
S540 – Long Association
Long association with a client or partner rotation requirements create familiarity threats.
37
S410 – Fee Dependency
When a client provides a large portion of total fees, it creates self-interest and intimidation threats.
38
S430 – Litigation with Client
Actual or threatened litigation creates an intimidation threat to independence.
39
S600 Series – Non-Assurance Services
Auditors providing non-assurance services must avoid self-review threats.
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SAICA By-law 4.1.7
Failure to comply with any regulation, By-law, or the Code.
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SAICA By-law 4.2.2
Gross negligence in connection with professional duties.
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SAICA By-law 4.2.3
Certifying or reporting on information without taking reasonable steps to ensure correctness.
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SAICA By-law 4.2.4
Wilfully refusing or failing to comply with By-laws.
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SAICA By-law 4.2.6
Conduct discreditable or dishonest bringing the profession into disrepute.
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ISA 210 – Preconditions for Audit
1️⃣ Acceptable financial reporting framework. 2️⃣ Management acknowledges responsibility for FS, internal control, and providing info. 3️⃣ Unrestricted access to records and staff. 4️⃣ Auditor obtains agreement from management.
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ISA 210 – Factors Before Accepting Client
Management integrity; independence; competence; resources; prior auditor communication.
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ISA 210 – When preconditions not met
Auditor should not accept the engagement if preconditions are not present.
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Internal Control Weakness Formula
Weakness → Consequence → Recommendation. Example format: Weakness: State specific problem. Consequence: “This could lead to fraud/theft/misstatement because there is no control to prevent or detect it.” Recommendation: “Management should implement a control to ensure that…” or “Segregate duties between [Person A] and [Person B].”
50
When one person performs multiple steps
Weakness: Lack of segregation of duties. Consequence: “This increases the risk of fraud or error going undetected. The person could both perpetrate and conceal a fraud.” Recommendation: Separate preparation, authorisation, and custody functions.
51
When no one checks another’s work
Weakness: Lack of independent verification/review. Consequence: “Errors or intentional misstatements may not be detected or corrected.” Recommendation: Independent person should review or reconcile work.
52
When documents aren’t pre-numbered
Weakness: Documents not sequentially numbered. Consequence: “Completeness cannot be ensured; transactions may be lost or omitted.” Recommendation: Use pre-numbered documents and perform sequence checks.
53
When no one checks missing numbers
Weakness: No sequence check on documents. Consequence: “Missing documents and unrecorded transactions will not be identified.” Recommendation: Regular sequence checks of prenumbered documents.
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When the preparer also authorises
Weakness: Same person prepares and authorises. Consequence: “Undermines validity; person could authorise fraudulent or inaccurate transactions.” Recommendation: Separate preparation and approval responsibilities.
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When assets not secured
Weakness: Inadequate physical control. Consequence: “Assets vulnerable to theft or misappropriation.” Recommendation: Lock assets, restrict access, and maintain custody logs.
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When a manager ‘rubber-stamps’
Weakness: Authorisation perfunctory, not based on review. Consequence: “Invalid or inaccurate transactions may be approved.” Recommendation: Require proper supporting documentation before approval.
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Control Objectives (Validity)
Ensure that recorded transactions actually occurred and are with bona fide parties.
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Control Objectives (Completeness)
Ensure all valid transactions are recorded—nothing is missing.
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Control Objectives (Accuracy)
Ensure all transactions recorded at correct amount and in correct period.
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Control Objectives (Cut-off)
Ensure transactions recorded in the correct accounting period.
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Control Objectives (Classification)
Ensure transactions posted to correct ledger accounts.
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Control Objectives (Safeguarding)
Ensure assets are physically protected from loss or theft.
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Control Activities (Authorization & Approval)
Transactions must be approved by a responsible official before processing.
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Control Activities (Segregation of Duties)
No single person should control all key stages of a transaction.
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Control Activities (Performance Reviews)
Independent checks and reconciliations such as bank and supplier statement reconciliations.
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Control Activities (Information Processing Controls)
Use sequential numbering and sequence checks to ensure completeness and accuracy.
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Control Activities (Physical Controls)
Safes, locks, restricted access, and security systems to protect assets.
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Ethics: Fundamental Principles
Integrity – honest and straightforward. Objectivity – avoid bias/conflict. Professional Competence & Due Care – maintain skill, act diligently. Confidentiality – do not disclose info. Professional Behaviour – obey laws and avoid discrediting the profession.
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Ethics: Types of Threats
Self-interest (financial/personal benefit). Self-review (auditing own work). Advocacy (promoting client’s interests). Familiarity (close relationship). Intimidation (pressure or threats).
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Ethics: Core phrase linking threat to principle
“This creates a [Self-Interest/Familiarity/etc.] threat to the fundamental principle of [Objectivity/Integrity/etc.].”
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Ethics: High-risk language
“The level of this threat could be significant because independence and objectivity are likely to be compromised.”
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Ethics: Misleading Information Section
“This is a breach of Section 220: Preparation and Presentation of Information if the information is misleading.”
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Ethics: Misrepresenting as RA
“This contravenes the Auditing Profession Act (APA) as the person is misrepresenting themselves as a Registered Auditor.”
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Audit Risk: Common Inherent Risk Factors
Inexperienced management; complex estimates; industry under pressure; rapid growth; weak controls; limited working capital.
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Audit Risk: Example sentences
“Complex estimates such as valuations increase inherent risk.” “Economic pressure raises risk of management manipulation.” “Rapid growth can strain internal controls.”
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Materiality: Justification language
“I have chosen 5 % of Profit Before Tax as planning materiality because PBT is a stable benchmark important to users and not volatile.”
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Materiality: Link to risk
“When inherent risk is high, use the lower end of the materiality range; when low, use the higher end.”
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Purpose of Internal Control
“To provide reasonable assurance about achievement of objectives for operations, reporting, and compliance—not to eliminate all risk.”
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Auditor’s Reliance on Controls
“The auditor tests control effectiveness only if intending to rely on them; weak controls → fully substantive approach.”
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Objective of an Audit
“To express an opinion whether FS are prepared, in all material respects, per the applicable framework. Audits give reasonable, not absolute, assurance.”
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COSO Framework Statement
“The control environment is the foundation of all other internal-control components; it sets the tone and influences control consciousness.”
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Golden-formula summary line
State Weakness → Explain Consequence → Recommend Control. Always use clear, three-sentence structure for guaranteed marks.
Auditing 288
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