Question 3 (28 marks) As you have a sound knowledge of the SAICA Code of Professional Conduct, you have been asked to comment on the following unrelated situations which have arisen at your audit firm. 1. One of the firm's audit clients, Iron Ware Ltd, provides educational bursaries for the children of its employees including children of senior management. The company now wants to introduce a programme to assist bursary students who graduate, to find employment. The company has requested your firm to offer training contracts to students who qualify with a Bachelor of Commerce degree. The Iron Ware Ltd group is a major client of your firm. (5) 2. Another major audit client of your firm is Megasure Ltd. Jack Johnson, whose wife runs a catering business called Jack Spratt CC, is the manager on the audit. Megasure Ltd spends a significant amount of money on internal business related entertainment, and is about to put its catering contract out for tender. Whilst reviewing the minutes of a directors meeting, Jack Johnson came across the amount which the directors regarded as a reasonable tender price. That night he discussed the tender with his wife and suggested that she submit a tender in the name of Jack Spratt CC. Although Jack Johnson was a member of Jack Spratt CC he instructed his wife (the only other member of the CC) not to use his name in any correspondence and under no circumstances to reveal that she was his wife. He also told her to tender just below the expected amount and agreed to get as much information as he could about Megasure Ltd's catering expenditure. The following day he instructed a trainee accountant on the audit team to comprehensively analyse the company's catering expenditure, although this work was not necessary for audit purposes. (12) 3. Supa Rugby (Pty) Ltd is also an audit client of the firm. Along with other companies, the company has the rights to manufacture and distribute Supa Rugby merchandise. The company has a number of exciting business opportunities and its financial director has approached your firm to enter into a joint venture with it in the form of a private company, to develop these opportunities. Your firm's contribution to the joint venture will be for the partners to invest an initial R5m as start up loan capital, to provide advice on the financial systems and to carry out the annual audit on the joint venture company. (The company's Memorandum of Incorporation will require an annual audit). All the shares in the joint venture company will be owned by Supa Rugby (Pty) Ltd, and the board of directors of the joint venture company will be made up of directors of Supa Rugby (Pty) Ltd and two of your firm's partners. (5) YOU ARE REQUIRED TO: (a) briefly explain each of the fundamental principles of the SAICA Code of Professional Conduct. (6) (b) discuss each of the above situations (1-3) in terms of the SAICA Code of Professional Conduct. (22) For Question (b) above - YOU ARE REQUIRED TO: 1) Identify the type of threat 2) Identify the fundamental principles threatened 3) Indicate the safeguards to each scenario Example Joe Soap, an audit Partner at an audit firm, owns 25% of one of his audit clients, Ship-Shape (Pty) Ltd. Type of Threat? Fundamental Principles threatened Safeguards to reduce/eliminate threat