9
Rotation of Partner every 5 years
No rotation required
YES
YESYES
NO
NONO
Process Of Enhancing Auditor’s Independence
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Experience Ingenuity.
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Requires an Audit(Section 90 of Companies Act apply)
Audited by Registered Auditor
No requirement for independent review - Only compilation of AFS
(S30(2A) owner managed exemption)
Perform independent review
Company requiring a statutory audit?(Companies Act S90, S92)
Does it elect and perform a voluntary audit and include an audit requirement
in its MOI? (SAICA Guide 7.7.4.4)
Is it a public interest entity by another regulation) other than listed entities)?
(IESBA Code of Ethics 290.149)
Calculate Public Interest Score
PI Score < 100 or100> PI Score <350 and AFS
independently complied
PI Score < 350 or100> PI Score <350 and AFS
independently complied
Is the client a listed entity?(ISQC 1.25(b))
Is the company owner managed? (All shareholders = directors)
Safeguard in place to eliminate the familiarity or self-interest threat?
(IESBA Code of Ethics 290. 148 - Having a registered auditor (who was not a member of the audit team) to perform a review of the work of senior personnel OR internal/
external quality/ peer review of the engagement)
Rotate every 7 years(Unless safeguards in place to address the
familiarity or self-interest threat)
YES
YES
YES
NO
NO
YES
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Companies Act 2008
3 Nkonki | Process Of Enhancing Auditor’s Independence
Experience Ingenuity.
• Section 90 (2)• Precluding auditor’s appointment if certain employment relationships exist.• Responsibility of board of directors to determine prior to appointment.• Auditors cannot accept an appointment knowing they are in an employment with a client.
• Section 90 (2) (b) (v)• After completing an employment relationship with client 5 year cooling off period prior to being
appointed auditor.
• Section 90 (2) (c)• Audit comm to ensure auditor appointed in independent.
• Section 94 (7) (a)• Auditor comm appoint auditor who is independent in term s90 and must consider IRBA Code of
Professional Conduct in determine indpendence.• Example of directors ensuring independence of auditor.
• Section 92• Rotation of auditor partner every 5 years with 2 year cooling off period.
• SECTION APPLIES TO THE AUDIT FIRM AS WELL AS THE ENGAGEMENT PARTNER.
IRBA Code of Professional Conduct
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Experience Ingenuity.
• Independence in Fact and Appearance
• Accountants must not only maintain an independent attitude in fulfilling their responsibilities, but the users of financial statements must have confidence in that independence.
• These two objectives are frequently identified as “independence in fact” and “independence in appearance.” • Independence in fact exists when the accountant is able to maintain an unbiased attitude throughout the audit, so
being objective and impartial, whereas independence in appearance is the result of others’ interpretations of this independence.
• The IFAC ethics guideline states that independence requires: • Independence of mind: The state of mind that permits the provision of an opinion without being affected by
influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.
• Independence in appearance: The avoidance of facts and circumstances that are so signiicant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm’s, or a member of the assurance team’s, integrity, objectivity or professional skepticism had been compromised.
Threat Explanation
Self-interestThe threat is that you will act in your self-interest over the interest of your client. A financial or other interest may inappropriately influence your judgment or behavior.
Self-review The threat arises when you have to evaluate or form a judgment on a past service provided by your firm, or by yourself.
AdvocacyThe threat arises when you advocate the position or interest of your client. You may promote a particular position in favor of certain interests to the point that your objectivity is compromised.
FamiliarityThe threat arises when you become too familiar with your client. A long or close relationship with a client or a related party may mean you may become too sympathetic toward their interest.
IntimidationThe threat arises when you are intimidated by your client to act in a certain way. You may be placed under pressure, and your objectivity may become compromised. The pressures may be actual or perceived.
Threats to Independence
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Experience Ingenuity.
ISQC 1 and ISA 220
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Experience Ingenuity.
ISQC1.31 requires the firm to establish policies and procedures to assign
appropriate personnel with the necessary competence, and capabilities to perform audit
engagements • One of the most difficult independence to
control via legislation is the “Familiarity Threat” which occurs when an auditor becomes too sympathetic to the client’s interests because he has a close relationship with an assurance
client, its directors, officers or employees.
ISQC 1.24 - At least annually, the firm shall obtain written confirmation of compliance
with its policies and procedures on independence from all firm personnel
required to be independent by relevant ethical requirement
SA220.11 The engagement partner shall form a conclusion on compliance
with independence requirements that apply to the audit engagement
Implementation Date
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7 Nkonki | Process Of Enhancing Auditor’s Independence
Experience Ingenuity.
• Section 90 (2) (V) - a person who, at any time during the five financial years immediately preceding the date of appointment was doing consulting work cannot be appointed as an auditor. (5 year cooling off rule)
• As of 25 January 2016 many audit firms are engaged in various consulting engagements would preclude them from being appointed as auditors until 25 January 2021 (assuming they withdrew from this consulting work on the 25 January 2016).
• If the audit firm is given say 2 years to complete their current consulting engagement then the date MAFR can be implemented is 2023.
• If the audit firm is not engaged in any work as contemplated above the audit firm can be appointed immediately under s 90of the 2008Act.
• This would obviously benefit those audit firms who are currently not engaged in consulting work, which in essence will be most small to medium size audit firms (SME).
• The SMEs are being disadvantaged as they do not have access to consulting work for listed companies.
• Only by giving them immediate access to listed clients will the playing fields become level.
By Products of enhanced Independence in South African Context
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Experience Ingenuity.
Boosts SME share of listed company market.
• SME more likely to obtain listed company audits and consulting work.
Increase in Black Auditors signing JSE Listed Companies.
• Spread intellectual capital
Transformation
• Following pillars of NDP satisfied:- Growing an inclusive economy
- The need to improve capabilities
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Contact Details
Experience Ingenuity.
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