QUESTION 2(28 marks)

You are a partner in the large audit firm of Bhengu Borthwick and Botha, generally referred to as BB and B. One of the quality control procedures which the firm has implemented is the review of the independence of partners and professional staff in relation to assurance clients. One of your functions is to review situations where independence may be impaired. The following situations have been referred to you for your consideration:

1.One of your fellow partners Mary Cross, is shortly to marry the financial director of one of BB and B's major audit clients, Groupton Ltd, a listed company. (6)

2. Your firm has been offered the appointment of auditor of Futuretech Ltd a company listed on the JSE. Three years ago Futuretech Ltd made an offer of shares to the public and as the company appeared to be a good investment, each of the partners of BB and B purchased a minor holding which they all still hold. (5)

3. A number of BB and B's staff who work for long periods on the audit of Tricom (Pty) Ltd, want to form an indoor cricket team with members of Tricom Ltd's accounting staff. The team wishes to call itself BB and B Tricom (this will appear on their playing kit), and to play in the local indoor cricket league.(4)

4. Rockwater Ltd another of BB and B's major clients, has recently purchased 100% of the shares of Enterprises (Pty) Ltd and your firm has been offered the appointment of auditor of the newly acquired company. Enterprises (Pty) Ltd is currently involved in a drawn out and unpleasant lawsuit against Corban Agencies (Pty) Ltd, another of your long standing audit clients. Enterprises (Pty) Ltd alleges that Corban Agencies (Pty) Ltd enticed certain of their customers away by unfair means. From time to time during this lawsuit, a lawyer who works in BB and B's legal section has advised Corban Agencies (Pty) Ltd on certain matters pertaining to the lawsuit. (7)

YOU ARE REQUIRED TO:

a) explain the meaning of the term independence of mind in the context of a chartered accountant. (2)

b) briefly describe the policies and procedures you would adopt in an attempt to ensure that the highest standards of independence are maintained by the partners and professional staff of Benson Borthwick and Botha. (4)

c) classify each of the above situations in terms of the categories of threats to independence identified by the SAICA Code of Professional Conduct. Fully justify your choices and discuss the safeguards (if any) which could be put in place to reduce the threats to an acceptable level.