Governance and Control 2A 2018

SECOND ASSESSMENT OPPORTUNITY - SCENARIO

3 MAY 2018

FIRST EXAMINERS: MR R MOOSA

MS S VENTER

READING TIME: 20 MINUTES

WRITING TIME: 2 HOURS
INTERNAL MODERATOR: MRS R SMITH MARKS: 100 MARKS
INSTRUCTIONS:
1. This part of the paper consists of four pages. If your paper does not contain all the
pages, please put up your hand so that a replacement paper can be handed to you.
2. You have 15 minutes reading time. During this time you are only allowed to read and
make notes on the question paper (scenario). You are not allowed to write anything on
the answering sheet. The required section will only be provided to you once the reading
time if finished.
3. Answer all the questions.
4. Answer each question on a separate folio.
5. Calculate the time that you should spend on each question by multiplying the number of
marks for each question by 1,2 to determine the time, in minutes, available for each
question. Adhere to these time constraints in order to finish the paper in the given time.
6. Delete all (even single open lines) open spaces on your answer sheets with pen. Pages
on your answer sheets that contain open spaces will be marked as such and those pages
will not be eligible for a remark.
7. No tippex or pencil may be used on your answer sheets. Pages on your answer sheets
that contain pencil or tippex will be marked as such and will not be eligible for a remark.
8. All the examination regulations of the UJ and the policy document for students of the
Department of Accountancy will apply during this assessment.
9. Hand this paper in, as it will be distributed with your marked answer sheet.
10. The neatness, disclosure and presentation of your answers will be taken into account
when marking your paper.
11. Read questions carefully, if you need to provide explanations you should always use full
sentences, refrain from simply naming facts.

Page 1 of 4
QUESTION 1 45 MARKS
(54 MINUTES)

After some exceptional value added in your previous financial roles, you have become known for
your insight into risk identification and management. With this skill set, you have started a
consulting company that assists companies with their risk management processes.

Your company has been contracted by Perfect Pecans Ltd (hereafter Perfect Pecans) to assist in
their risk identification and management. Perfect Pecans is listed on the Johannesburg Stock
Exchange

Perfect Pecans is in the agriculture sector and is committed to growing quality pecan nuts in
Groblersdal, North-West. Pecan nuts are an exceptional source of nutrition and many health
benefits have been attributed to them. The American Society for Nutritional Sciences Loma Linda
University study of pecans shows they significantly lower cholesterol. A monounsaturated fatty
acid–rich pecan-enriched diet favourably alters the Serum Lipid Profile of healthy men and women.
As certified organic, Perfect Pecans offers pecans with the added benefit of being 100% void of
any traces of pesticides or any other element which corrupts the natural health benefits of pecans.

The climatic requirements for healthy growth in the pecan nut kernels is an average monthly
maximum temperature of about 28 °C during summer and lower than 23 °C in winter. The
Groblersdal area weather forecast predicts a hot summer of the average high being 31 °C.

Perfect Pecans have a strong export relationship with China. The have fixed contracts for tonnages
of pecan nuts to be exported to China within a season. Should Perfect Pecan not be able to meet
the amount of tons to be provided, they have to pay heavy penalties to their Chinese partner.

The Pecan Report is a report on recent prices and yields of pecan nuts crops. This report has
indicated a strong commodity price for the coming season.

Amongst the many other committees that Perfect Pecans has, the risk committee looks as follows:

1. Robert van der Vyver

Mr van der Vyver is the production director of Perfect Pecans. He has a cumulative
experience of 25 years in the pecan industry. He only serves on the risk committee for
Perfect Pecans.

2. Jonathan Zulu
Mr Zulu is a full time member of the Agricultural Research Council of South Africa. Mr Zulu
invested in Perfect Pecans many years ago. He effectively owns about 15% of the
company. He only serves on the risk committee for Perfect Pecans.

Perfect Pecans was shocked to see an article on News24 about traces of pesticides on their
products. After an internal investigation was launched, it was noted that the neighbouring farm has
dusted their crops and that this could have affected the nuts on their farms too.

Page 2 of 4
QUESTION 2 12 MARKS
(14 MINUTES)

You are the auditor for Cellkom Limited. You received an email from a concerned shareholder of
the company expressing concerns regarding the director’s conduct.

To: Wiseman@goodauditors.com
From: TParent@coldmail.com
Date: 4 April 2018
Subject: Concerns at CellKom

Dear Mr. Wiseman

During a recent meeting with a business associate, I was told of possible dealings by the directors
of CellKom that could be concerning. I have it on good authority that the recent contracts secured
with PhoneWorld was obtained through bribery. I also attended the Annual General Meeting held
last month. I am sorry to say, but I was disappointed with the proceedings. I have included a
screen shot of the meetings notice below:

CellKom Annual General Meeting Notice

You are hereby invited to attend the Annual General Meeting of the company in accordance
with the requirements of the companies act.

Notice period: 10 business days

Venue: Indaba Hotel, Midrand, 150 Old Road

The agenda for the meeting is as follows:

1) To approve the board of director resolutions;

2) To discuss the proposed expansion plans of the business;
3) Approve the minutes for the previous AGM held on the 17th of April 2016.

B Ndlovo
Company Secretary
Midrand
10 February 2018

Connecting People

Regards
Mr. TRS Parent

Page 3 of 4
QUESTION 3 43 MARKS
(52 MINUTES)

You are a member of the Institute of Internal Auditors South Africa. You have recently completed
an internal audit review over the control environment at Glamour (Pty) Ltd. You have a meeting
scheduled with the management team at Glamour where you plan to provide them with the
following executive summary of your findings and recommendations.

Executive summary

This report presents the results of an extensive internal audit review over the control
environment at Glamour (Pty) Ltd carried out during the month of April 2018. The control
environment was found to be effective, except for the findings below:

Findings:
 In five instances, it was found that credit sales were made to customers, who were not
credit worthy.
 Background checks on recent staff hires, revealed that the information contained in their
curriculum vitae could not be verified.
 Programmed controls over the computer terminals were found to be weak.

Recommendations:
 As Glamour currently uses a batch processing system, we recommend that the computer
system be upgraded to an online system as this will ensure more effective and efficient
system processing.

Judith Nlapo (IIA SA)

Investo Inc.
30 April 2018

Page 4 of 4