Governance, Audit & Assurance II ACC3022H

Objective Test 1 – February 2022

Total Marks: 10 Time: 13 minutes
Name:
Tut Group:

Spurs Ltd (“Spurs”) is a publicly listed retailer specialising in the sale of sporting goods. Your
audit firm, DLite, has recently been appointed as the company’s auditor by the chair of the
board, for the financial year ended 31 December 2021. As part of the firm’s pre-engagement
activities the following information was obtained:
The chair of the board, Mr Danilo Levy, appointed his friend, Mrs Annalise van Staden, as the
company’s Chief Executive Officer (“CEO”) three years ago. During the 2021 financial year,
to incentivise Mrs van Staden to stay on as the CEO of Spurs, Mr Levy decided to issue 1000
Class A shares to her. The market price per share at the time was R40, however the shares
were issued to Mrs van Staden for no consideration. As the shares were issued for no
consideration, the board decided not to reflect this share issue in the 2021 financial
statements.
In one of her first decisions as CEO, Mrs van Staden selected Dodgey (Pty) Ltd (“Dodgey”) as
one of Spurs’ major suppliers of sporting goods. Dodgey is a company incorporated by Mrs
van Staden’s daughter, Taahirah. Due to her relationship with the company, Taahirah has
increased Dodgey’s usual mark-up on sales to Spurs by 50% because her mom has always
insisted that, for her, “family always comes first”. The Spurs finance director felt that there may
be conflict of interest regarding this agreement, however did not know where to report the
issue as no Social and Ethics committee is in place at Spurs.

Required:
Identify and explain any corporate governance concerns you may have with reference to
only the Companies Act No. 71 of 2008. (10)