Module: AIC2A2

Unit: Learning unit 1

The Internal Structure of the business
The Responsibilities, functions, and qualities of an auditor
Class session 1: Week 1 - 2024
Question 1 - Solution
Different types of auditors and practical examples:
Forensic auditor – XYZ Company, a mid-sized manufacturing firm, starts noticing
discrepancies in their financial records. They suspect that an employee might be embezzling
funds. To investigate the matter, they hire a forensic auditor.
Registered auditor  – ABC Corporation is a publicly traded company operating in the retail
sector. As part of regulatory requirements and good corporate governance, ABC engages
BDO Inc to conduct an annual financial audit.
Government auditor – The City of Ekurhuleni is a local municipality with various
departments responsible for public services, such as public safety, public works, and
education. Auditor General is assigned to conduct an annual financial audit of the
municipality.
Special purpose auditor – A non-profit organization, DRAFT Foundation, receives grants
from various donors to support its charitable activities. The donors require the foundation to
undergo a special purpose audit to ensure that the funds are used in accordance with the terms
and conditions of the grants.
Internal auditor - XYZ Corporation is a manufacturing company that sources raw
materials and components from various suppliers. The company's internal auditor is tasked
with conducting an audit of the procurement process to ensure efficiency, compliance, and the
prevention of fraud.
Question 2 - Solution
a) The auditor is bound by the profession’s CPC (code of professional conduct).  The CPC
requires the auditor ‘to respect the confidentiality of information acquired as a result of
professional and business relationships and, therefore, not disclose any such information to
third parties without proper and specific authority, unless there is a legal or professional
right or duty to disclose, nor use the information for the personal advantage of the registered
auditor or third parties.
b) Independent in relation to the members of the auditing profession means the ability of the
member to:
➢ apply objective (not subjective) consideration and unbiased judgement to established
facts in arriving at an opinion or decision.
➢ adopt an impartial view, free of any influence, interest or relationship which could
impair his independence.
➢ recognise and respond appropriately to threats, e.g. self-interest threats, intimidation
threats, to his independence both in ‘mind’ and ‘appearance’.
c) The auditor should ‘not only be independent but be seen to be independent’. This
means that even if the auditor believes that he can act independently (retain an
independent mind) in a situation in which he does not appear to be independent he should
decline the engagement, e.g. the auditor may believe that he can perform the audit of his
father’s company independently and may in fact do so!  However, because of the
family relationship the auditor will not be seen (perceived) to be independent by users of
the audit opinion provided by the auditor. Users will simply assume that the auditor is not
independent (because it is his father’s company) regardless of how independently he may
have acted.
➢ Furthermore, if the auditing profession is not perceived to be independent, even
though it may be independent in its actions, its credibility will be undermined.
➢ Most importantly, the relationship between Mr Faf and his son will pose a familiarity
threat to Mr Faf’s son as auditor, which may compromise his objectivity as auditor. 
d) The auditor does not perform his/her duties in the interest of his/her client and is not on
anybody’s side;  the auditor must be independent of the client and the party to whom he
reports so that the opinion given by the auditor is impartial and free of bias.