Auditing Profession Act, 2005 (Act No. 26 of 2005)

Board Notices

Independent Regulatory Board for Auditors

New Rules Regarding Improper Conduct and Code of Professional Conduct for Registered Auditors

Code of Professional Conduct for Registered Auditors

Part B : Registered Auditors in Public Practice

Section 290 : Independence-Audit and Review Engagements

Family and Personal Relationships
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Introduction

 

290.127Family and personal relationships between a member of the audit team and a director or officer or certain employees (depending on their role) of the audit client may create self-interest, familiarity or intimidation threats. The existence and significance of any threats will depend on a number of factors, including the individual's responsibilities on the audit team, the role of the family member or other individual within the client and the closeness of the relationship.

 

Immediate family is a director or in a position to exert significant influence

 

290.128When an immediate family member of a member of the audit team is:
(a) A director or officer of the audit client; or
(b) An employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion,

or was in such a position during any period covered by the engagement or the financial statements, the threats to independence can only be reduced to an acceptable level by removing the individual from the audit team. The closeness of the relationship is such that no other safeguards could reduce the threat to an acceptable level. Accordingly, no individual who has such a relationship shall be a member of the audit team.

 

290.129 Threats to independence are created when an immediate family member of the audit team is an employee in a position to exert significant influence over the client's financial position, financial performance or cash flows. The significance of the threats will depend on factors such as:
•The position held by the immediate family member; and
•The role of the professional on the audit team.

 

The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level.

 

Examples of such safeguards include:

•Removing the individual from the audit team; or
•Structuring the responsibilities of the audit team so that the professional does not deal with matters that are within the responsibility of the immediate family member.

 

Close family is a director or in a position to exert significant influence

 

290.130 Threats to independence are created when a close family member of a member of the audit team is:
(a) A director or officer of the audit client; or
(b) An employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.

 

The significance of the threats will depend on factors such as:

•The nature of the relationship between the member of the audit team and the close family member;
•The position held by the close family member; and
•The role of the professional on the audit team.

 

The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level.

 

Examples of such safeguards include:

•Removing the individual from the audit team; or
•Structuring the responsibilities of the audit team so that the professional does not deal with matters that are within the responsibility of the close family member.

 

Close relationship with a director or employee in a position to exert significant influence

 

290.131Threats to independence are created when a member of the audit team has a close relationship with a person who is not an immediate or close family member, but who is a director or officer or an employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion. A member of the audit team who has such a relationship shall consult in accordance with firm policies and procedures. The significance of the threats will depend on factors such as:
•The nature of the relationship between the individual and the member of the audit team;
•The position the individual holds with the client; and
•The role of the professional on the audit team.

 

The significance of the threats shall be evaluated and safeguards applied when necessary to eliminate the threats or reduce them to an acceptable level. Examples of such safeguards include:

•Removing the professional from the audit team; or
•Structuring the responsibilities of the audit team so that the professional does not deal with matters that are within the responsibility of the individual with whom the professional has a close relationship.

 

Other personal or family relationships with a director or employee in a position to exert significant influence

 

290.132 Self-interest, familiarity or intimidation threats may be created by a personal or family relationship between:
(a) a partner or employee of the firm who is not a member of the audit team; and
(b) a director or officer of the audit client or an employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.

 

Partners and employees of the firm who are aware of such relationships shall consult in accordance with firm policies and procedures. The existence and significance of any threat will depend on factors such as:

•The nature of the relationship between the partner or employee of the firm and the director or officer or employee of the client;
•The interaction of the partner or employee of the firm with the audit team;
•The position of the partner or employee within the firm; and
•The position the individual holds with the client.

 

The significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:

•Structuring the partner's or employee's responsibilities to reduce any potential influence over the audit engagement; or
•Having a registered auditor review the relevant audit work performed.

 

Inadvertent violations

 

290.133When an inadvertent violation of this section as it relates to family and personal relationships occurs, it is deemed not to compromise independence if:
(a) The firm has established policies and procedures that require prompt notification to the firm of any breaches resulting from changes in the employment status of their immediate or close family members or other personal relationships that create threats to independence;
(b) The inadvertent violation relates to an immediate family member of a member of the audit team becoming a director or officer of the audit client or being in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion, and the relevant professional is removed from the audit team; and
(c) The firm applies other safeguards when necessary to reduce any remaining threat to an acceptable level. Examples of such safeguards include:
•Having a registered auditor review the work of the member of the audit team; or
•Excluding the relevant professional from any significant decision making concerning the engagement.

 

The firm shall determine whether to discuss the matter with those charged with governance.