(a)
Scenario 1: The corporate governance issues in this scenario include conflicts of interest, lack of disclosure of related party transactions, and potential bribery. Sandra Peterson, as the CFO of Nissan and wife of Jordan Peterson, should have disclosed her relationship with Bruce Wayne(Pty) Ltd and any benefits received from the transaction. Her involvement in negotiating the loan and assisting her son to buy shares at a lower price raise concerns about conflicts of interest. Additionally, the offer of a gift to Tony Stark at the beginning of the audit engagement could be seen as an attempt to influence the audit process.
Scenario 2: The corporate governance issues in this scenario include misrepresentation of carbon emissions, potential fraud in the form of misclassifying expenses, and potential threats to auditor independence. The CEO's statements regarding the carbon emissions and his close relationships with government officials raise concerns about transparency and accountability. The misclassification of the expenditure to the Bahamas as director's travel allowance raises red flags about the accuracy of the financial statements. Furthermore, the mention of an auditor's disappearance and the close relationship between the managing director of Porche Ltd and Ford(Pty) Ltd indicate potential threats to auditor independence.
(b)
Based on the information learned from the professional codes of conduct, ethics, South African legislation, and King codes, the following recommendations and guidance can be provided:
- Ensure full disclosure of related party transactions, conflicts of interest, and any benefits received by key personnel in the financial statements.
- Implement strong internal controls to prevent and detect fraud, including misclassification of expenses and misrepresentation of information.
- Comply with laws and regulations related to corporate governance, ethics, and financial reporting.
- Maintain auditor independence and objectivity by avoiding conflicts of interest and undue influence from management or other parties.
(c)
For Tony Stark:
- Advise Tony to report the potential conflicts of interest involving Sandra Peterson and the lack of disclosure of related party transactions to the engagement partner and senior management.
- Instruct Tony to decline any gifts or offers of payment that could compromise his independence or objectivity during the audit.
- Recommend Tony to ensure that all findings related to corporate governance issues are properly documented and reported in the audit workpapers.
For Hunter Biden:
- Advise Hunter to investigate further into the misrepresentation of carbon emissions and the misclassification of expenses to ensure the accuracy of the financial statements.
- Instruct Hunter to report any potential fraud or unethical behavior to the engagement partner and senior management.
- Recommend Hunter to review the audit engagement strategy and adjust the audit plan to address the identified risks and issues.
(d)
Audit engagement strategy:
1. Planning phase:
- Assess the risks related to corporate governance issues identified in the scenarios, including conflicts of interest, potential fraud, and threats to auditor independence.
- Develop a detailed audit plan that addresses the specific risks and issues identified in each scenario.
- Communicate with management and the audit team to ensure a clear understanding of the audit objectives and scope.
2. Execution phase:
- Conduct detailed testing and analysis of the relevant accounts and transactions to verify the accuracy and completeness of the financial statements.
- Obtain sufficient and appropriate audit evidence to support the audit findings related to corporate governance issues.
- Document all findings and observations in the audit workpapers, including any recommendations for improvement.
3. Reporting phase:
- Prepare a comprehensive audit report that highlights the key findings related to corporate governance issues and provides recommendations for corrective actions.
- Communicate the audit results to senior management and the audit committee, emphasizing the importance of addressing the identified risks and issues.
- Follow up on any unresolved matters and monitor the implementation of recommended improvements.
You are a senior trainee accountant in your audit firm’s technical department. Your
responsibility is to advise fellow staff members, conducting an audit, on statutory and
corporate governance matters.
One of the firm’s clients is the Tesla Group. All companies in the group manufacture retail
or wholesale electronic vehicles and related accessories. T Tesla, Inc. is an American
multinational automotive and clean energy company headquartered in Austin, Texas,
which designs, manufactures and sells electric vehicles, stationary battery energy
storage devices from home to grid-scale, solar panels and solar shingles, and related
products and services.
The group is structured as follows: Tesla Ltd holds 60% of Volkswagen, 80% of Ford(Pty)
Ltd and 70% of Nissan. Ford(Pty) Ltd holds 100% of the shares in Porche Ltd.
Your firm Thanos Ltd holds the appointment, as auditors of all companies in the group
and the various audit teams are currently engaged in the 31 August year end audit.
You have received the following details about your trainees:
Scenario 1
Tony Stark on the audit of Nissan found that an amount of R 1,6 million in trade creditors
owed to Bruce Wayne(Pty) Ltd. This represents the purchase during August of a machine
that manufactures electronic vehicle, specifically, SUVs that can travel 400 km on a single
charge. Bruce Wayne(Pty) Ltd is fully owned by Jordan Peterson and two of the four
directors of Nissan who have no shareholding at Nissan.
Tony also found out the CFO at Nissan is Jordan Peterson’s wife Sandra. She had
negotiated the loan on behalf of Nissan. Moreover, she had assisted her son Derek to
buy shares at Nissan at a lower price. After all she assisted in solving Nissans liquidity
issues.
Tony was offered R250 000 as a gift at the beginning of the audit engagement. Tony used
half of the money to support a nearby orphanage and donated the rest for war victims in
Palestine. Tony found that all the source documents including purchase documentation,
for example, a purchase order, delivery note, invoice and entries in the records, were
correct. However, the Sandra’s benefits were not disclosed in the notes to financial
statements.
Scenario 2
Hunter Biden, was selected to lead the audit of Ford (Pty) Ltd. He found out the carbon
emission in Ford was 60% above what they disclosed. The CEO stated that this minor
deviance was because of measurement errors. He also mentioned that he was close
friends with government officials. He casually mentioned the disappearance of an auditor
who ‘did not know how to do business ‘. Furthermore, the company has made a number
of loans during the past year. Several bank transfers were made
One was a R150 000 expenditure to the Bahamas which was documented as directors
travelling allowance. This was spent by Paul, the managing director of Porche Ltd who
also serves on the board of Ford(Pty) Ltd.
REQUIRED
(a) Elaborate on the corporate governance issues mentioned in each of the scenarios
(20)
(b) Synthesis all the information learnt from the professional codes of conduct, ethics,
South African legislation and King codes to give recommendations and guidance
to the above scenarios (10)
(c) How would you advise each of the trainees under your supervision?(6)
(d) Share your audit engagement strategy justifying each phase (9
May you kindly answer this questions according to South African Auditing Guidelines.
1 answer
1 answer