Question One

(a)Comment on ,in terms of the code of professional conduct ,the decision of Samuel and
Ndiweni to decline the audit engagement relating to the sale of Springford Pvt (Ltd).

Samuel and Ndiweni made a right decision to decline the audit engagement relating to the sale
of Springford Pvt Ltd because of the threats to independence they were going to face or
encounter during the engagement.These threats are explained in detail below after a brief
definition of valuation in terms of the code of professional conduct.

According to section 290.175 of the code of professional conduct ,a valuation comprises the
making of assumptions with regard to future developments ,the application of appropriate
methodologies and techniques ,and the combination of both to compute a certain value or
range of values for an asset,liability or for a business as a whole .

Section 290.175 of the code of professional conduct states that a self review threat will be
created if a firm performs valuation services for an audit client .

In terms of section 100.12 b of the code of professional conduct self review threat is defined as
the threat that a registered auditor (firm at large ) will not appropriately evaluate the results of
a previous judgement made or service performed by the registered auditor or by another
individual within the registered auditor firm ,in which the registered auditor will rely when form
a judgement as part of providing a current service.For example in this case Samuel and Ndiweni
,were going to be the valuers and auditors of Springford Pvt Ltd at the same time and this
situation will creat a conducive environment for selfreview threat.

Apart from that Samuel and Ndiweni made a right decision to decline an engagement relating
to the sale of Springford in the sense that were going to face or encounter familiarity threat.

In terms of section 100.12b familiarity threat is defined as the threat that due to a long or close
relationship with a client,a registered auditor ( firm at large ) will be too sympathetic or too
accepting of their work.For example in this case Samuel and Ndiweni were regarded or referred
to as usual auditors of Springford Pvt and this would create an opportunity or act as an
accelerator or catalyst for close relationship.In this case it is most likely that Samuel and
Ndiweni would be too accepting or tolerant to whatever going to be presented by Springford to
them pertaining to the valuation and this would result jn an inappropriate report in the
circumstance and have material effect to the enduser (Autoworld )
In addition to that there is a greater possibility of encountering advocacy threat ,if the two were
going to accept the engagement.

In terms of code of professional conduct advocacy threat is defined as the threat in which a
registered auditor promotes the client to an extent that his objectivity is compromised.In this
case there is greater possibility that Springford management would convince Samuel and
Ndiweni to come up with an estimated value which is attractive (biased) in the eyes of
Autoworld PVt Ltd and by doing so they allow an bias or undue influence to override over their
profession .

Conclusively Samuel and Ndiweni made a right decision in terms of code of professional and by
doing so they comply with independence which is regarded as the cornerstone or bedrock of
the proffession.In addition to that the parties display professional behaviour by avoid the
circumstances which discredits the profession.

b)Evaluate the conduct of Crawford anf Ndebele Inc in terms of the code of professional
conduct ,based on the information given above (regard the actions of Hapiness as being the
actions of Crawford and Ndebele Inc).

Crawford and Ndebele lnc had compromised or violated some of the fundamental principles of
the code of professional conduct.The principles which are compromised are explained in detail
below.

According to section 140 of the code of professional conduct ,the principle of confidentiality
imposes an obligation on all registered auditors to refrain from disclosing outside the firm's
confidential inforamtion acquired as a result of professional and business relationships without
proper or specific authority or unless there is legal or professional right or duty to disclose and
making improper use of confidential information acquired as a result of professional and
business relationships to the personal advantage or the advantage of third parties.

Under section 140.4 ,the registered auditor is also obliged to mantain confidentiality of
information within the firm which is disclosed by the client.

In this case Crawford and Ndebele Inc disclosed confidential information which was acquired as
a result of professional and business relationship without proper and specific authority from
Springford Pvt Ltd .In this case Crawford Happiness(on behalf of Crawford and Ndebele Inc)gave
Trymore some important details of the company after the completion of valuation of Springford
Pvt Ltd .Hence the Entity violated section 140 of the code of professional conduct.

However there are exceptions in which the auditor (firm at large ) is or may be required to
disclose confidential information or when such disclosure is permited by the law and is
authorised by the client and if the disclosure is required by law for the production of
documents or other provision of evidence in the course of legal proceedings or disclosure to the
authorities of infringement of the law that come to light ,including disclosures of reportable
irregularities reported to the body as required by section 45 of the code of conduct.

According to section 110.1 of the code of professional conduct the principle of integrity
imposes an obligation on all registered auditors to be straight forward and honest in all
professional and business relationships.Integrity implies fair dealings and truthfulness.

In this case Crawford and Ndebele Inc plays a pivotal role in a deal between Trymore and
Springford pvt Ltd ,which was unfair since Trymore was in possesion of substantial
information / critical information pertaining to the valuation of Springford which was disclosed
by Happiness (on behalf of his firm).Therefore the information was used by Trymore as an
instrument / weapon to outperform or kickout Autoworld out of the deal.

Section 150.1 of the of professional conduct imposes an obligation on all registered auditors to
comply with relevant laws and regulations and avoid any action that the registered auditor
knows or should know may discredit the profession.The actions which may discredits the
profession includes actions that a reasonable and informed third party ,weighing all the specific
facts and circumstances availanle to the registered auditor at that time ,would be likely to
conclude adversely affects the good reputation of the profession.For example in this case the
third part would be likely to conclude adversely affects the good reputation of the
profession,,with regards to actions of Crawford and Ndebele inc.

Section 290 of the code of professional conduct describes independence as the state of mind
that permits the expression of a conclusion without being affected by influences that
compromise professional ,thereby allowing an individual to act with integrity and exercise
objectivity and professional skepticism (independence of mind) and also avoidance of facts and
circumstances that are so signficant that a reasonable ad informed third part would be likely
to conclude ,weighing all the specific facts and circumstances ,that a firm's or a member of the
audit team's ,integrity ,objectivity or professional skepticism has been compromised .

The appointment of Crawford and Ndebele as auditors of Springford Pvt Ltd ,would create
familiarity threat to independence since ,,Happiness and Trymore Moyo were close friends.In
addition to that the granting of a substantial loan of $500000 to Crawford and Ndebele Inc
would also create a familiarity threat which is significant .(290.121)

(C)Expound on the importance of the term independence in relation to the auditing profession.

According to section 290.6 of the code of professional conduct independence comprises of

independence of mind -is the state of mind that permits the expression of a conclusion without
being affected by influences that compromise professional skepticism ,thereby allowing an
individual to act with integrity and exercise objectivity and professional skepticism .

Independence of mind-is the avoidance of facts and circumstances that are so significant that a
reasonable and informed third party would be likely to conclude ,weighing all the specific facts
and circumstances ,that a firm's or a member of the audit team's ,integrity ,objectivity or
professional skepticism has been compromised.

Independence is a cornerstone of the auditing profession and the basic principle that underpins
the reputation of the auditing profession in the public eye .Independence enhances the
sustainability of the auditing profession .

Apart from that independence is vital in the sense that it has the ability to directly influence the
judgement that is put forth by the auditor ,that is independence of
mind(www.researchgate.net).

In addition to that independence imposes an important obligation on all registered auditors to

execute their work in a free and objective manner which would enable them to base opinions
without biases or external pressures since the report is supposed to be used by numerous
stakeholders around the organisation .

Furthermore independence allows adoption of integral approach and question anything that
the auditor believes should be scrutinised within the company .In this regard enables auditors
or professionals to muster the courage to question the company and the officials in case
something is missing in the financial statements or if they are any irregularities.

Last but not least independence allows a professional or auditor to act in the interest of the
public ,and this would also enhances the confidence of endusers of the financial statements.

Conclusively independence is regarded as the cornerstone because of the benefits which it

displays if ,the professional /auditor comply or adhere to its requirements.For example
independence is vital in the sense that it has a direct impact in the decision that is issued by the
auditor.So if the judgement is impaired ,they might not be able to issue a free and fair view and
therefore ,this would result in bigger damage to the overall ecosystem or
Profession(www.researchgate.net).

Question 2

(a) Elaborate on the matters on which your firm should give consideration ,when deciding
whether to accept the above prospestive clients.
The purpose of preliminary activities is to ensure that the auditing firm has considered or take
into account all circumstances or events that may adversely affect the auditors ability to plan
and perform audit engagement inorder to reduce audit risk to an acceptable level.

Factors to consider in relation to Fungai's Case.

First and foremost ,the firm should give consideration to the size of the business of the
client .This would enable the firm to asses its resources in relation to the size of the entity of
the client and also to make staffing decisions.Also size of the client's business is important in
such a way ,that the firm would in a position to know the number of personel to be assigned
inorder to carry out the engagement effectively and within an agreed time frame with the
client.( ISA handbook)

Apart from that the firm should take into account if its firm personel has knowledge of relevant
industries or subject matter .For example in this case the firm's employees are obliged to have
relevant knowledge of the fishimg industry .This would enable the firm to deliver competent
professional services to the client.

Also the firm has to consider if its personel is aware of the subject matter ( financial
statements),Knowledge of the subject matter is very vital ,because it enables the firm's auditors
to identify any irregularities ,for example if the subject matter is not prepared in accordance
with applicable framework or departure from applicable standard .

In addition to that the firm has to take into account if its personel is competent to carry out the
engagement.For example the firm has to deliver competent professional services to
Fungai ,based on developments in relevant legislation or techniques.For example the firm
should comply with the requirements of the ISQC 1 and ISA 220,inorder to deliver a quality
audit to the client(Fungai).

Furthermore ,the firm has to consider ,if the appointment is legally valid .For example ,in this
scenario Fungai is a public entity ,so it has to comply with provisions of the Companies Act of
Zimbabwe when appointing an auditor.(section 151 ).

Moreso the firm has to consider integrity of the client.However under integrity there are many
factors to take into account which are very essential .These factors are explained in detail
below.

In this scenario ,the integrity of Fungai's management is questionable since the previous
auditors had resigned,therefore the firm in this case should be given a room to communicate
with the previous auditors before accepting the engagement.However they should comply with
fundamental principles of auditing when communicating with the previous auditors.
Moreover the firm has to give consideration to any involvement of the client in criminal
allegations.In this case Fungai Business Ltd was convicted for exceeding its fishing quotas and
threatned with closure by Authorities.This case would also raise a question about the continuity
or survival of Fungai Business in the foreseeable future.

Conclusively the firm has to consider the reasons for the proposed appointment of the firm and
non reappointment of the previous firm .The reasons are important because they will assist the
firm to make a decision pertaining to the acceptance of the engagement .

(b)Midterm Pvt (Ltd) Scenario

First and foremost the firm has to give consideration to size of the business of the client
(Midterm Pvt Ltd).This factor is very important because it assists the auditor to plan for the
audit (ISA 300).It also help to determine if it had sufficient resources to carry out or perform the
engagement with an agreed time frame.For example in this case the firm ,has to determine if
personel is capable of providing assurance services to Midterm Pvt Ltd within an agreed time
frame.(depending on the time on which they had agreed).

In addition to that the firm has to consider if its personel is competent to carry out the
engagement.This is very vital because the entity has to fullfill two objectives at the same
time ,that is acting in the interest of the public and provision of competent professional services
to the client.Also the firm to adopt or comply with technical standards such as ISQC 1 and IS A
220 and other standards which are relevant in the circumstances.

Apart from that the firm has to consider a portfolio of skills available within the organisation
before accepting the engagement from Midterm Pvt Ltd .This is very important in the sense
that ,this would enable the firm to make decisions pertaining to the engagement of experts
when the firm encounter difficult and contentious matters during the audit.

Another important factor to consider when determining to accept an audit engagement and
assurance engagement with Midterm Pvt Ltd is establishing whether the preconditions for the
audit are made by the client .Regarding the precondition for an audit ISA 210
states:preconditions for an audit ,as the use by management of acceptable financial reporting
framework in the preparations of the financial statements and the agreement of management
and when appropriate ,those charged with governance to the business on which an audit is
conducted.(lSA's handbook ).

Factors to consider in relation to Mashiri PVt Ltd

First and foremost the firm should obtain an understanding of the client"s business and
industry .This is vital because it provides an overview of the numerous aspects of the client's
business that an auditor must understand to perform effectively in an audit of Mashiri's
financial statements.With regards to this scenario ,the firm should have knowledge of Mashiri
Pvt Ltd light Engineering sector.

In addition to that the firm has to focus on key issues such as management because they are
responsible for preparation of the financial statements and implementing of internal control
that are necesssary for preparation of financial statements that are free material misstatements
due to fraud or error.apart from that the firm has to focuss on Mashiri's accounting policies ,if
they are acceptable and appropriate.

Furthermore the firm has to take into account the size and complexity of Mashiri's
business .This would assist the firm to plan for the audit.

Moreso the firm has to take into account auditors business risk ,which is the risk if potential
litigation costs from an alleged audit failure and the risk of other costs such as reputational
effects (AICPA).The evidence in this scenario it clearly shows that Mashiri is a risky client in the
sense that the entity decided to change its previous auditors because they had different views
to the ( directors) on which accounting policies were appropriate for the entity.

Conclusively ,the firm has to evaluate the integrity of management .The firm should assess the
integrity of Mashiri's management.The integrity of Mashiri's management or directors is
questionable as the entity had failed to provide specific details pertaining to the
appropriateness of its accounting policies.

(b)The code of professional conduct (CPC) and the international standards on auditing place
certain responsibilities on the auditor elucidate on the auditors responsibilities in relation to
fraud and error as outlined in ISA 240 and the principle of professional competence and due
care.

Principle of professional competence and due care

Under section 130.1 the principle of professional competence and due care imposes the
following obligations on all registered auditors:

(a)To maintain professional knowledge and skill at the level required to ensure that clients
receive competent professional services ,and

(b)To act diligently in accordance with applicable technical and professional standards when
providing professional services.The obligations under this section are explained in detail below .

A registered auditor is obliged to maintain knowledge and skill at the level required so that
clients would be in a position to receive competent professional services.,however the auditor
would be a in position to provide competent professional services if he or she exercise sound
judgement in applying professional knowledge and skill in the performance of such
service(section 130.2 of the code of professional conduct).A registered auditor can attain or
maintain professional competence(130.2)The auditor can maintain professional competence
through continuos awareness and understandimg of relevant technical ,professional and
business development.

For example ,a registered auditor can enhance understanding of relevant

technical ,professional and business development,through continous training and attending of
seminars,where professionals interpret,impart skills ,knowledge and techniques on application
of technical standards.

Apart from that a registerd auditor is obliged to have an ability to develop and maintain
capabilities to perform competently within the professional enviroment.

Moreso section 130.1b of the code of professional conduct establishes a registered auditor to
act in accordance with applicable technical and professional standards when providing
professional services.A registered auditor is obliged to act accordingly with what the
assignment requires.This is used as shield to avoid circumstances on which registered can act
beyond or behind the requirements of the assignment.

Apart from that diligence encompass the responsibility to act carefully ,thoroughly and on a
timely basis(section 130.4 code of professional conduct).

Auditors responsibility relating to fraud.

Fraud is an intentional act by one or more individuals among management ,those charged with
governance ,employees or third parties ,involving the use of deception to obtain unjust or illegal
advantage.

Fraud whether ,fraudulent financial reporting or misappropriation of assets ,involves incentive or

pressure to commit fraud ,perceived opportunity to do so and some rationalization of the act .for
example

Incentive or pressure to commit fraudulent financial reporting may exist when senior personal is under
pressure ,from sources outside or inside the entity or if the consenques of failing to meet targeted
earning are so significant.(for example deployment or retrenchment)

A perceived opportunity to commit fraud may exist when an individual believes internal control can be
overridden .,for example because the individual has knowledge of some deficiencies in internal control.
Individuals may be able to rationalize commiting a fraudulent act