You are a senior trainee accountant in your audit firm’s technical department. Your

Question

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.
a) Explain whether each of the scenarios is permissible in terms of the Code of Ethics
b) Discuss the role of the audit committee, King codes in ensuring governance in an
organization of your choice
c) Critically analyse the role and place of the internal audit activity in the
organisational plan of an organization. Use examples

Answer 1

a)
Scenario 1: According to the Code of Ethics for Professional Accountants, Tony Stark's acceptance of a gift at the beginning of the audit engagement and the undisclosed benefits received by Sandra, the CFO of Nissan, raise ethical concerns. Accepting a gift may impair Tony's independence and objectivity, and Sandra's undisclosed benefits may impact the integrity of the financial statements. It is important to disclose such conflicts of interest and benefits to maintain transparency and integrity in the audit process.

Scenario 2: The CEO of Ford (Pty) Ltd's close relationship with government officials, the high carbon emissions being misrepresented, and the undocumented expenditure by Paul, the managing director of Porche Ltd, also raise ethical concerns. The misrepresentation of carbon emissions and undocumented expenditures can mislead stakeholders and impact the reliability and accuracy of the financial statements.

b)
The audit committee plays a crucial role in ensuring governance in an organization by providing oversight of financial reporting, internal controls, and risk management. The King Codes of Corporate Governance in South Africa provide guidelines for effective corporate governance practices, focusing on transparency, accountability, and ethical conduct. The audit committee is responsible for reviewing financial statements, monitoring internal controls, evaluating the effectiveness of the internal audit function, and overseeing the external audit process. By adhering to the King Codes and involving a competent and independent audit committee, organizations can enhance transparency, accountability, and ethical behavior.

c)
The internal audit activity plays a vital role in an organization's risk management and governance framework. Internal auditors provide independent and objective assurance on the effectiveness of risk management, control, and governance processes. They evaluate the organization's operations to identify potential risks, weaknesses in internal controls, and opportunities for improvement. Through their risk-based approach, internal auditors help organizations mitigate risks, enhance operational efficiency, and ensure compliance with laws and regulations.

For example, in a manufacturing company like Tesla Group, internal auditors can assess the effectiveness of controls over the production processes, supply chain management, and financial reporting. They can identify potential fraud risks, operational inefficiencies, and compliance issues. By working closely with management and the audit committee, internal auditors contribute to the overall success and sustainability of the organization. Their insights and recommendations help management make informed decisions, improve performance, and achieve strategic objectives.