Question 1 (45 marks) a. Briefly explain the concept of the auditor's independence and give examples of four different situations in which the auditor's independence might be impaired. (7) b. Section 290 of the Code of Professional Conduct CPC gives guidance on the Independence of Auditors. In so doing it, inter alia, identifies threats to independence, safeguards against these and sets out specific examples by the way of illustration. (15) You are required to: 1. Identify the five categories of threats to independence as set out in the CPC. ii. For each threat, give ONE circumstance that may give rise to that threat. iii. Explain what safeguards can be put in place to address the threats). i. Marita Tebana has decided to resign as partner and leave the bustling city life. A client of the firm, Railey Ltd, has offered her an appointment as financial manager at their Kakamas branch office. Marita wants to know is she can accept the appointment at Railey Ltd. ii. Jan Painting is the owner of Services (Pty) Ltd. His company specialises in providing support services to auditing firms. He has approached the partners at your firm with the following proposal: > As Services (Pty) Ltd has contacts at most other auditing firms, they are well placed to identify staff at other firms and offer them positions at your firm. Services (Pty) Ltd can also assist the firm in expanding their base of audit clients. They believe their success lies in using any and all forms of communication: telephoning prospective clients; mailing, faxing and e-mailing brochures to clients. They also have software available that makes the mass sending of SMS messages possible The other partners want your comment on Jan's proposal. (17) You are required to: Respond to each of the situations listed above in terms of the requirements of the CPC, Disciplinary Rules and the Auditing Profession Act. d. Sipho Majali ia a chartered accountant working as the financial director for a company called Electronic Sounds (Pty) Ltd. The company has been making losses recently due to stocking outdated sound equipment which has not been selling very well. The stock is selling so badly that Sipho suggested that they write it down to net realisable value in order to comply with fair presentation The CEO, Jack Malone, has refused that this be done as he says it will result in the company having a net liability position, which will look really bad to the shareholders. He is not willing to lose his bonus because of some "bogus accounting requirements. He tells Sipho that if he doesn't keep his "silly accountant mouth shut, he may be reading the classifieds for a new job very soon. You are required to: Discuss, in terms of the CPC, what threats to the fundamental principles of ethical behaviour are evident from the scenario above