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

Employment with an Audit Client

Purchase

A former partner or member of the audit team joins an audit client

290.134

Familiarity or intimidation threats may be created if 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, has been a member of the audit team or partner of the firm.

290.135

If a former member of the audit team or partner of the firm has joined the audit client in such a position and a significant connection remains between the firm and the individual, the threat would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, independence would be deemed to be compromised if a former member of the audit team or partner joins the audit client as a director or officer, or as 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, unless:

(a)	The individual is not entitled to any benefits or payments from the firm, unless made in accordance with fixed pre-determined arrangements, and any amount owed to the individual is not material to the firm; and

(b)	The individual does not continue to participate or appear to participate in the firm's business or professional activities.

290.136

If a former member of the audit team or partner of the firm has joined the audit client in such a position, and no significant connection remains between the firm and the individual, the existence and significance of any familiarity or intimidation threats will depend on factors such as:

•	The position the individual has taken at the client;

•	Any involvement the individual will have with the audit team;

•	The length of time since the individual was a member of the audit team or partner of the firm; and

•	The former position of the individual within the audit team or firm, for example, whether the individual was responsible for maintaining regular contact with the client's management or those charged with governance.

The significance of any threats created shall be evaluated and safeguards applied when necessary to eliminate the threats or reduce them to an acceptable level.

Examples of such safeguards include:

•	Modifying the audit plan;

•	Assigning individuals to the audit team who have sufficient experience in relation to the individual who has joined the client; or

•	Having a registered auditor review the work of the former member of the audit team.

A former partner joins an entity that subsequently becomes an audit client

290.137

If a former partner of the firm has previously joined an entity in such a position and the entity subsequently becomes an audit client of the firm, the significance of any threats to independence shall be evaluated and safeguards applied, when necessary, to eliminate the threat or reduce it to an acceptable level.

Audit team members entering into employment negotiations with an audit client

290.138

A self-interest threat is created when a member of the audit team participates in the audit engagement while knowing that the member of the audit team will, or may, join the client sometime in the future. Firm policies and procedures shall require members of an audit team to notify the firm when entering employment negotiations with the client. On receiving such notification, 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

•	A review of any significant judgments made by that individual while on the team.

Audit Clients that are Public Interest Entities

Key audit partner joins an audit client

290.139

Familiarity or intimidation threats are created when a key audit partner joins the audit client that is a public interest entity as:

(a)	A director or officer of the entity; 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.

Independence would be deemed to be compromised unless, subsequent to the partner ceasing to be a key audit partner, the public interest entity had issued audited financial statements covering a period of not less than twelve months and the partner was not a member of the audit team with respect to the audit of those financial statements.

Senior or Managing Partner (Chief Executive Officer) joins an audit client

290.140

An intimidation threat is created when the individual who was the firm's Senior or Managing Partner (Chief Executive or equivalent) joins an audit client that is a public interest entity as:

(a)	an employee in a position to exert significant influence over the preparation of the entity's accounting records or its financial statements; or

(b)	a director or officer of the entity. Independence would be deemed to be compromised unless twelve months have passed since the individual was the Senior, or Managing Partner (Chief Executive or equivalent) of the firm.

290.141

Independence is deemed not to be compromised if, as a result of a business combination, a former key audit partner or the individual who was the firm's former Senior or Managing Partner is in a position as described in paragraphs 290.139 and 290.140, and:

(a)	The position was not taken in contemplation of the business combination;

(b)	Any benefits or payments due to the former partner from the firm have been settled in full, unless made in accordance with fixed pre-determined arrangements and any amount owed to the partner is not material to the firm;

(c)	The former partner does not continue to participate or appear to participate in the firm's business or professional activities; and

(d)	The position held by the former partner with the audit client is discussed with those charged with governance.