The historical framework
Audit Practice Bulletin No. 2 of 2013, issued on 10 April, discusses section 290 of the then Code and section 10 of the Companies Act. The conceptual framework requires accountants to identify and eliminate independence threats proactively. This is a historical account of those numbered provisions, rather than a restatement of today’s Code.
Officers and directors of assurance clients
Under the cited paragraph 290.149, an accountant, partner or employee of the firm serving as an officer or board director of an assurance client creates self-review and self-interest threats which safeguards cannot reduce acceptably. For financial-statement audits, this extends to personnel of a network firm. If the person accepts the position, the firm must refuse or withdraw from the assurance engagement.
Company secretary versus administrative support
Paragraph 290.151 generally treats an accountant, partner or employee of the firm or network firm acting as company secretary of a financial-statement audit client as creating unacceptable self-review and advocacy threats. Paragraph 290.152 allows routine secretarial administration or related advice only with management making every relevant decision. A network involves cooperation with shared profit or costs, ownership, control, management, quality policies, strategy, branding or significant professional resources.
The Companies Act reaches related companies
Section 10(5) prohibits a firm knowingly accepting or acting as auditor where any partner, whether a public accountant or otherwise, is an officer of the company. The referenced officer definition includes directors, secretaries and executive employees. The prohibition also reaches an officer of a related corporation: a holding company, subsidiary or fellow subsidiary under section 6.
A nominal secretary clause did not cure the breach
ACRA found firms auditing clients whose directors or secretaries were network-firm employees. One engagement letter called an employee a named secretary with no business, management or administrative involvement. This did not remove the secretary’s statutory responsibilities or cure the independence breach; a contractual label was not an effective safeguard.
Spouses and incomplete group lists
A public accountant auditing a company where the spouse was a director or secretary breached the then family-relationship provision 290.136; removing the accountant from the assurance team was required to reduce the threat acceptably. Another firm breached section 10(5) because its partner was a director of a related company omitted from a client-supplied group list. Unawareness resulting from an incomplete list did not prevent the breach.
Four controls and regulatory consequences
The bulletin recommends policies controlling partners’ acceptance of directorships; partner confirmations, potentially through annual independence declarations; periodic comparison of all partner directorships with the audit-client list and follow-up on lapses or false declarations; and complete related-company information at acceptance and continuance. ACRA had issued stern warnings and said further breaches would lead to more severe action. Non-compliance may lead to Accountants Act Part IV discipline and/or Companies Act prosecution. The bulletin supplements, rather than replaces, prescribed professional standards.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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