Audit And Governance

Question 1

Qualified audit report

Answer 1

A bad report with some irregularities, in which auditors have to state the kind of irregularity note to the shareholders. (Qualified their statement)

why shareholders will be concerned about the company receiving such a report.

􏰄 There is a weakness in internal controls – possible mismanagement / fraud
􏰄 This will impact on the image of the business, and on share price (demand) /
on share price / returns earned / dividends earned by shareholders
􏰄 Potential investors would not be interested to buy shares / existing
shareholders may want to sell their shares
􏰄 Directors appointed by them are not reliable – lose confidence in them
􏰄 Significant information is not being openly discussed (transparency)
􏰄 No proof that the donations reached the intended schools / fraud

why the auditor should not agree with adding wrong items to sundry expenses.

􏰄 He belongs to a professional body and is bound by a code of conduct
􏰄 This request is unethical / fraudulent behaviour / misleading shareholders
􏰄 He does not have an interest in the company, should be unbiased
􏰄 He is concerned about his own reputation and prospects for future
assignments;
􏰄 The auditor has to be independent to issue a reliable opinion / not be
influenced by directors (who are responsible to drawing up statements)
􏰄 There should be an investigation into possible criminal activity / should not be
any cover-up / culprits must face legal consequences.

Question 2

Disclaimer of opinion

Answer 2

Very bad report in which auditors may recommend further investigation on certain outstanding irregularities before issuing a report.

Reasons for concern

Question 3

Unqualified audit report

Answer 3

Good report with minor irregularities if any.

Why the auditor refer to pages
 The auditors are responsible only for reports presented on these pages of the Annual Report.
 The audited financial reports / statements are found on these pages of the full report presented to the shareholders at the AGM

Why the auditor referred to International Financial Reporting Standards and the Companies Act of South Africa
 The audit and the financial records/statements of the company are in compliance with both local and international requirements.
 It affects uniform presentation of financial statements.

Question 4

Types of audit evidence

Answer 4

Stock sheets
fixed assets register
source documents including EFT records
bank; debtors; creditors statements
signed contracts
employee profiles
physical inspection of assets
journals

Question 5

Remunerations Committee.

Answer 5

Explain the role/responsibility of this committee and give a reason why this committee is necessary.
EXPLANATION:
Review all salaries, bonuses and other earnings
To prevent directors from paying themselves too much
They must approve, and give advice on the proposals re fees, bonuses etc.

REASON:
 To ensure fairness / transparency in the payment of fees/salaries
 To prevent fraud / corruption / wastage
 Detect mismanagement or fraudulent activities
 They can compare the remuneration / earnings against financial information of other companies in the industry / fairness to workers

Question 6

Executive director’s

Answer 6

 Executive directors are involved with internal functioning (operations) of the company.
 Executive directors should be more vigilant and professional in their duties and not tempted to engage in unethical activities.

Question 7

Non-executive directors

Answer 7

 Non-executive directors have a wider perspective of the business environment; and act in the best interest of the company.
 The non-executive directors would exercise a watch-dog role; keep executive directors in check.
 The non-executive directors can be paid less than the other directors (because they do not work permanently in the company).

Question 8

Memorandum of Incorporation (Moi)

Answer 8

Formation document that includes all the rules, procedures and guidelines concerning a company.

Question 9

Companies and Intellectual Property Commission (CIPC)

Answer 9

Responsible for the registration and control of all companies.

Question 10

The South African Institute of Chartered Accountants (SAICA)

Answer 10

A professional body with a membership of all chartered accountants.

Question 11

The International Financial Reporting Standards (IFRS)

Answer 11

A global set of reporting standards that makes financial statements comparable and consistent.