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Auditing > Companies Act Question Bank > Flashcards

Companies Act Question Bank Flashcards

1
Q

Discuss any possible threats to the fundamental principles of ethical behavior as contained in the SAICA code of professional conduct.

A 
Threats
- self interest
- self review
- familiarity
- intimidation 
- advocacy 
Fundamental principles
- integrity
- objectivity
- professional competence and due care
- professional behavior
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2
Q

Discuss Companies Act requirement for disposal of greater part of the company’s assets

A
  1. Approval by special resolution
  2. If 15% or more oppose, court approval is required
  3. Notice of shareholders meeting for resolution of disposal
    - within prescribed time
    - prescribed manner
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3
Q

Discuss companies act relating to directors personal financial interest

A
  1. Must be disclose nature and extent of interest before hand
  2. Disclose material information relating to
  3. May disclose observation and insights
  4. Must leave the meeting after disclosure
  5. May not take part in voting
  6. Not allow to execute any document on behalf of the board rewarding the matter
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4
Q

Discuss companies act requirement for financial assistance for subscription of securities

A
  1. Authorization by special resolution
  2. Company satisfy solvency and liquidity test
  3. Terms of financial assistance fair and reasonable
  4. Any condition of MOI adhered to
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5
Q

Companies act issue regarding issue of shares

A
  1. Authorization by director resolution
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6
Q

Companies act issue regarding distribution

A
  1. Distribution must based on court order or directors resolution
  2. Companies satisfy solvency and liquidity test
  3. Company must acknowledge that the company satisfy solvency and liquidity test through directors resolution
  4. Distribution must be made within 120 days of resolution or curt order otherwise reconsider the solvency and liquidity test
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7
Q

Discuss solvency and liquidity test

A
  1. Assets (fairly valued) exceeds liabilities (fairly valued)
  2. Company will be able to pay its debts as they become due in ordinary course of business for period of 12 months of the date on which the test is considered
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8
Q

Discuss special resolution

A
  1. Special resolution = 75% voting rights to be exercises

2. MOI can lower the %

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9
Q

What is a reportable irregularity?

A

Any unlawful act or omission committed by any person responsible for management of an entity, has caused or is likely to cause financial loss to the entity or any partner, member, shareholder, creditor or investor of the entity in respect of his or her dealing with that entity is fraudulent or amounts to theft that presents a material breach of fiduciary duty.

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10
Q

What are the action to report reportable irregularity?

A
  1. Notify IRBA immediately without delay in writing
  2. Within 3 days notify management of such report
  3. Discuss with management
  4. Send another report back to IRBA
    - no RI took place
    - RI no longer take place and adequate steps have been taken to prevent or recover the losses
    - RI still taking place
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11
Q

Discuss companies act requirement for share buy backs

A
  1. An legal obligation or court order
  2. Board authorizes by resolution
  3. Solvency and liquidity test satisfied
  4. Must always be shares in issue
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12
Q

Companies act requirement for loan to directors

A
  1. Solvency and liquidity test satisfied
  2. Term of loan reasonable and fair
  3. Authorized by special resolution of shareholders
  4. Void if contravention with MOI
  5. Company provide written notice of resolution to all shareholders and trade union within 10 days of resolution if exceeds 1% of net worth otherwise 30days after year end
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13
Q

What are the audit procedure for a loan?

A
  1. Obtain management representation letter detailing that loan balance is correctly stated
  2. Scrutinize all ledger account for any unusual items
    3, agree closing balance to general ledger, trial balances and financial statements
  3. Inspect minutes of shareholders for approval of loan
  4. Cast the account
  5. Obtain loan agreement and confirm
    - terms conditions fair and reasonable
    - interest rate applicable to the agreement
    - repayment term
    - agreement is legal
  6. Re calculate interest expenses and agree to ledger account
  7. Confirm outstanding capital and interest with with the 3rd party
  8. Inspect AFS and ensure balance and securities are correctly disclosed to IFRS and companies act
  9. Ensure all companies act requirement have been met
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14
Q

Steps in conversion to a new system

A
  1. Planning and preparation
  2. Control over conversion of data by data control group
  3. Update system documentation
  4. Testing
  5. Back up new system
  6. Perform post implementation review
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15
Q

What are the legal liability towards third party?

A

The auditor acted

  • negligently
  • maliciously
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16
Q

Auditors responsibilities with regards to fraud and error

A
  1. Consider the effect of fraud and error on FS
  2. Consider effect of fraud and error on audit report
  3. Adjust nature, timing and extent of audit procedures to reduce risk to acceptable level
  4. Implement an element of professional skepticism
  5. Discuss matter with those charged with governance
17
Q

Auditors responsibilities toward compliance with laws and regulations

A
  1. Consider impact of non compliance on FS
  2. Consider effect of non compliance on audit and risk assessment procedures
  3. Consider effect on audit report
  4. Discuss matter with those charged with governance
  5. Obtain legal advice
18
Q

Companies act requirement for removal of directors

A
  1. Ordinary shareholders resolution
  2. Notice of resolution must be given to shareholders at least 15 days before meeting
  3. Board can remove if more than two directors and the one to be remove is not eligible or incapacitated
  4. Director can apply to court to review decision

Auditing (21 decks)

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