Question

Question 3 (30 marks) SECTION A (15 marks) Pat Bright was an audit trainee on the audit of Major Motors Ltd, a large distributor of Jeep vehicles. The company recently ran a competition as part of a marketing and social responsibility campaign. For a R5 donation, a member of the public could obtain a ticket to the competition. The competition required entrants to estimate how many inflated mini-footballs could be packed into a Jeep Wrangler. Very few, if any, correct estimates were expected as the Jeep Wrangler has numerous storage compartments etc. where the mini-footballs could be placed. The first correct or closest entry drawn, would receive N$80 000 in cash and four tickets to the upcoming concert of an 2020 FIFA World Cup Whilst physically inspecting new vehicles in the showroom, Pat Bright overheard the media and marketing manager dictating a letter about the competition to his secretary. At the end of the afternoon when the media and marketing manager and secretary had left, Pat, suspecting that the answer to the question might be in the letter, entered the secretary's office, went through a file marked "confidential" which was in her top drawer, and found the correct estimate". He immediately phoned his girlfriend, told her to buy four tickets to the competition in her name, one with the correct answer which he gave her, and three with the incorrect answer. Page 11 of 15 When the competition draw was made, his girlfriend was declared the winner. On Pat's insistence, she sold the concert tickets, and with the N$80 000 the two of them went on Crusie Ship REQUIRED: Discuss the above in terms of the SAICA Code of Professional Conduct (ET). SECTION B (15 marks) A prospective client (none of the partners know him) has enquired as to whether we will look after a large sum of money he is expecting to receive shortly. He informs us that he is going on a nine month hike across Kilimanjaro and will not be able to look after these funds himself. He says that the money will be transferred to the firm's bank account on 31 October and that we can invest it as we see fit". The fee he is offering is very, very generous. REQUIRED: Can you advise us of any Code of Professional Conduct requirements we should be aware of? (15 marks)

Answer 1

Solution

1.The given case attracts the provisions of Section 140 of CODE OF PROFESSIONAL CONDUCT OF THE South African Institute of Chartered Accountants.

-Section 140.1 The principle of confidentiality imposes an obligation on all chartered accountants to refrain from:

(a) Disclosing outside the firm confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and

(b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.

In the given case, Pat disclosed to his girlfriend, the firm confidential information acquired as a result of professional relationship with the client in the capacity of an audit trainee without proper and specific authority and used it to their personal advantage. The SAICA also says that the Code is applicable to all SAICA members and associates and trainee accountants. A contravention of, or failure to comply with any requirements of the Code, may be regarded as an offence in terms of section 34.10 of the SAICA Bylaws and as such may be investigated and if appropriate the member/associate/trainee may be found guilty and may be liable for penalties as described in the By-laws.

-Thus, Pat has acted in contravention of the SAICA code and shall be liable to penalties as described in the By-laws.

2. It is a case of client entrusting the chartered accountant with custody of client assets, provisions of section 270 of the code of professional conduct will be attracted. Thus, the following code of professional conduct requirements need to be kept in mind:

Section 270.2 The holding of client assets creates threats to compliance with the fundamental principles. For example, there is a self-interest threat to professional behaviour and may be a self-interest threat to objectivity arising from holding client assets like higher fee offerings to the Chartered accountant. A chartered accountant entrusted with money (or other assets) belonging to others shall therefore:

(a) Keep such assets separately from personal or firm assets;

(b) Use such assets only for the purpose for which they are intended;

(c) At all times be ready to account for those assets and any income, dividends, or gains generated, to any persons entitled to such accounting; and

(d) Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets.

Section 270.3 As part of client and engagement acceptance procedures for services that may involve the holding of client assets, a chartered accountant in public practice shall make appropriate inquiries about the source of such assets and consider legal and regulatory obligations. For example, if the chartered accountant has reason to believe that the assets were derived from illegal activities, such as money laundering, a threat to compliance with the fundamental principles would be created. In such situations, the chartered accountant shall comply with the provisions of section 225.