AUE2602/201/3/2023

Tutorial Letter 201/3/2023

Corporate Governance in Accountancy

AUE2602

Assessment 2B
Semester 2

Department of Auditing

IMPORTANT INFORMATION
Please register on myUnisa, activate your myLife e-mail account and
make sure that you have regular access to the myUnisa module
website, AUE2602-2023-S2, as well as your group website.

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AUE2602_Semester 2_2023 Total: 40 marks

Assessment 2B

Part A 20 Marks

Question 1 20 Marks

Power (Pty) Ltd (“Power”), is a large manufacturer and supplier of solar batteries operating in
Southern Africa. The board considers sound corporate governance to be important and wishes
to follow the recommendations of King IV. In view of this, it has decided to appoint an audit
committee as the company is required to have its annual financial statements externally
audited by virtue of its public interest score. The list of senior executives and officers of Power
is as follows:

1. Ms Amy: Chairperson and non-executive director of Power.

2. Mr Vicky: Deputy chairperson and chief executive officer of Power.
3. Ms Ellisa Kekai: Financial director of Power, holding a BCom degree.
4. Ms Smith: Human resource director, with a limited understanding of
IFRS, integrated reporting and internal controls.
5. Mrs Miranda: Production director, with a limited understanding of IFRS,
integrated reporting and internal controls.
6. Ms Milly More: Marketing director and a CA(SA). Ms More has a
sound knowledge and understanding of integrated reporting and
related processes and controls as she has maintained her
interest in accounting.
7. Mr Livhoyi: Non-executive director who was the former production manager
at Power.
8. Mr Sibuya: Company secretary and not a director of Power
9. Mr Tshilidzi: Chief audit executive who is a CA(SA) and not a director of
Power.
10. Ms Matlala: Independent non-executive director of Power practising as a
CA(SA) and registered auditor (RA).
11. Ms Alie Maluleka: Independent non-executive director of Power and fashion editor
of a local magazine.
12. Mr Martain Gibs: Independent non-executive director of Power and chairperson
of his own toy company Playme (Pty) Ltd.
13. Mr Nana Mfundoa: Independent non-executive director of Power and retired as a
businessman five years ago.

Required:
Indicate whether each of the above individuals is eligible for appointment to Power’s audit
committee if the company is to adhere to the highest standards of corporate governance, and
provide reasons for your answer. NB Provide all possible reasons for your answer.
(0.5 marks for eligibility, 13.5 marks for reasons, 2 marks for presentation)

Present your answer as follows:

Individual Eligibility Reasons for eligibility

(Eligible/Not eligible)

½ mark each 1½ mark for each reason

provided

Assessment 2
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Part B 20 Marks

Question 1 10 Marks

You are the auditor of VI-YO (Pty) Ltd, which is a manufacturer of printing equipment. The
company sells its products to wholesalers and a few retailers. Mr William Fence, the managing
director of the company, is concerned about the sales and receipt system currently in place
and has asked for assistance in this regard. The following systems description was obtained
from the sales and receipt system.

Mrs Khwezi, the receptionist, is responsible for opening all incoming e-mail. All orders that are
received by mail are sent directly to the sales department, while all cheques and monies
received are sent to Mrs Collect, the debtors clerk. Mrs Collect enters the payments into the
debtors’ accounts and deposits the cash and cheques into the company bank account. After
receiving an order via mail or telephonically, the sales department creates three copies of the
sales order. The sales manager reviews and approves the sales orders before they are
dispatched. The first copy of the sales order is sent to the credit controller, who authorises
the order after the client’s creditworthiness and credit limit have been approved. The second
and third copies are delivered to the finished goods warehouse for the inventory to be
withdrawn. The dispatch department physically inspects the goods that are received from the
finished goods store and compares it to the third copy of the sales order. Thereafter, two copies
of the sales invoice are prepared in duplicate. The first copy is included in the shipment
together with the goods to the customer, and the second copy is sent to Mrs. Collect, the
debtors clerk. Mrs. Collect verifies all the calculations on the sales invoice and compares the
prices to the latest price list. She then updates the debtor’s account with the sales invoice.
Mrs Collect generates and mails monthly statements to debtors at the end of each month after
reconciling the debtors ledger to the debtors control account.

Required:
Identify the weaknesses in the above revenue and receipt system.

Question 2 10 Marks

You are the auditor of Magnet (Pty) Limited. The company makes use of a batch input system
to process the transactions in an integrated accounting system. During the audit of trade
receivable and sales, you performed the walk-through on the trade receivables and sales
application program for the year, which revealed the following errors:

1. A sales invoice was entered onto the system which exceeded the customer’s pre-
authorised credit limit.
2. Five sales invoices were not entered into the system.
3. Three sales invoices were entered into the system twice.
4. On two sales invoices, the customer account number contained six instead of seven
digits.
5. The customer account number field on one of the sales invoices contained alphabetic
characters instead of only numeric characters.

Required:
Identify and describe a programmed (automated) application control that could be used to
prevent these errors.

Assessment 2