FEEDBACK ON ASSESSMENT 3
Corporate governance in Accountancy
AUE2602
Semester 1 2025
Department of Auditing
This tutorial letter contains the suggested solutions and comments on
Assessment 3. The assessment covers lessons 1 to 6. Only certain sections
of the assessment may be marked.
1
AUE2602 Assessment 3 2025
Please note only question 1.2 and 1.4 was selected to mark.
Question 1
Question 1.1
Explain the requirements that should be satisfied before Ms Tar can be removed as a director
per the Companies Act No. 71 of 2008.
References:
Lesson 1 and Companies Act 71 of 2008
In terms of Section 71, despite anything to the contrary in the MOI
(1)
A director may be removed by an ordinary resolution at a shareholders meeting by the
persons entitled to exercise voting rights in the election of a director.
(1)
Before the shareholders of a company may consider such a resolution:
The director must be given notice of the meeting and the resolution to remove him
(1)
The notice period must be at least equivalent to that which a shareholder is entitled to
receive:
15 business days for public companies, or any longer notice per MOI; and
(2)
The director must be afforded a reasonable opportunity to make a presentation (in
person or through a representative) to the meeting before voting takes place.
(1)
If a company has more than two directors,
(1)
and a shareholder or director has alleged that a director of the company has become
ineligible or disqualified in terms of section 69, other than on the grounds contemplated
in section 69 (8) (a); or
(1)
become incapacitated to the extent that the director is unable to perform the functions of
a director, and is unlikely to regain that capacity within a reasonable time; or
(1)
neglected, or been derelict in the performance of, the functions of director.
(1)
The board, other than the director concerned, must determine the matter by resolution
and may remove that director.
(1)
Before the board of a company may consider a resolution the director concerned must be
given notice of the meeting,
(1)
including a copy of the proposed resolution and a statement setting out reasons for the
resolution, with sufficient specificity to reasonably permit the director to prepare and
present a response; and
(1)
a reasonable opportunity to make a presentation, in person or through a representative,
to the meeting before the resolution is put to a vote.
(1)
14 available marks
2
AUE2602 Assessment 3 2025
8 maximum marks
Question 1.2
Indicate whether each of the statements listed (1 to 7) is correct or incorrect. You must justify
your answer.
References:
Lesson 1 and King IV Principles 9 and 10
1. The chair of the board should be evaluated by the audit committee.
Incorrect (1) as this is not a function of the audit committee; it is a function an independent
non-executive member (Principle 9RP72). (1)
Note : f the students mention only independent 0.5 mark. If the student mentions nonexecutive 0.5. The student should mention independent and non-executive for full 1
mark.
2. Governing body members may be evaluated by the chair of the board.
Correct (1) as a committee may be formed or an independent party may be engaged to
evaluate board members. (1) Or
The chair may evaluate board members performance, but it should be part of a formal
process.
3. Only executive directors’performance needs to be evaluated.
Incorrect (1) as all board members should be evaluated (Principle 9RP73). (1)
4. The company secretary’s performance should be evaluated at least once a year.
Correct (1) as according to Principle 10.98 the performance should be evaluated at least
annually. (1)
5. Performance evaluation results should not be disclosed, with the exception of disclosure to
the governing body.
Incorrect (1). A formal process should be followed for evaluating the performance of the
governing body, it’s chair and its members as a whole (Principle 9RP73 and 9PR75). (1)
The process followed should be disclosed (1) Or
A description of the evaluation undertaken during the reporting period of the scope, formal
or informal, internally or externally (1) Or
An overview of the evaluation results and remedial actions taken (1) Or
Whether the board is satisfied that the evaluation process is improving its performance and
effectiveness. (1)
6. The governing body should appoint the CEO.
Correct (1). The governing body should appoint the CEO (Principle 10RP76). (1)
7. The governing body should formally evaluate the performance of the CEO every two years.
Incorrect (1) The governing body should formally evaluate the performance of the CEO at
least annually (Principle 10RP82). (1)
14 available marks
14 maximum marks
3
AUE2602 Assessment 3 2025
Question 1.3
With reference to the information included under the heading United Nations Global Compact
organisation.
Discuss three principles that are particularly relevant to a mining company in the South African
context.
References: Lesson 6.1.6 and https://unglobalcompact.org/what-is-gc/mission/principles
The Ten Principles of the United Nations Global Compact are derived from the Universal
Declaration of Human Rights, the International Labour Organsation’s Declaration on Fundamental
Principles and Rights at Work, the Rio Declaration on Environment and Development, and the
United Nations Convention Against Corruption.
Human Rights
Principle 1: Businesses should support and respect the protection of internationally proclaimed
human rights (1.5);
Principle 2: Make sure that they are not complicit in human rights abuses (1.5);
Labour
Principle 3: Businesses should uphold the freedom of association and the effective recognition of
the right to collective bargaining (1.5);
Principle 4: The elimination of all forms of forced and compulsory labour (1.5);
Principle 5: The effective abolition of child labour(1.5);
Principle 6: The elimination of discrimination in respect of employment and occupation (1.5);
Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges
(1.5);
Principle 8: Undertake initiatives to promote greater environmental responsibility (1.5);
Principle 9: Encourage the development and diffusion of environmentally friendly technologies
(1.5); and
Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and
bribery (1.5).
Note to markers: Accept all valid answers that relate to any of the above-mentioned principles.
Take note that students are only required to discuss three principles.
15 available marks
4.5 maximum marks
Communication skills: Clarity of expression and logical flow of arguments
(1)
4
AUE2602 Assessment 3 2025
Question 1.4
With reference to the information included under the heading Purchase of spare parts
Draft an email to management of MM to be reviewed by the audit partner in which you•
•
•
Identify the control weaknesses based on the purchase of spare parts; (1 mark for
each weakness).
List the business risks arising as a result of the identified weakness; and (1.5 marks
for each business risk).
List the controls that MM can implement to prevent these key risks. (1 mark for each
control).
Present your answer in a tabular format
References: Lesson 5, ISA 315 A190 and Auditing Notes for South African Students Chapter 11
Letterhead
Email to: Management of Mkhize Mine
From: (R Right. – to be reviewed by the partner)
Date: 26 January 2025
Subject: Reporting on internal control regarding the purchase of spare parts
Dear Mr Miner
This memorandum sets out the internal control deficiencies identified with regard to the
purchasing of spare parts and the possible impact thereof for MM during the financial year ended
30 June 2025.
5
AUE2602 Assessment 3 2025
Weakness
(Max 9)
Business risk
Control to be implemented
(Max 13.5)
(Max 9)
1.Spare parts that are no longer in use Parts that are no longer needed may be
are not deleted from the master file (1).
ordered if the reorder level is reached
which
could
lead
to
liquidity
problems/wastage (1.5).
The obsolete inventory should be deleted
from the master file by the store manager
after obtaining approval from the purchasing
manager (1).
Ordering of incorrect or unnecessary
goods which could lead to liquidity
problems/wastage (1.5).
2.There is no provision made to order Existing suppliers may not always offer
from alternative suppliers (1).
the most competitive prices which may
result in financial losses due to paying
unnecessarily high prices for goods
(1.5).
The purchasing manager should have the
responsibility of obtaining quotes from
alternative suppliers before placing an order
(1).
3.There is no approved list of authorised MM may be purchasing spare parts that There should be an approved list of approved
suppliers (1).
are not of the best quality resulting in suppliers that may be used so that parts of
losses and reputational damage to the the best quality and are ordered (1).
company (1.5).
4.Price changes are not negotiated with Spare parts may not be purchased at Before an order is placed the purchases
suppliers (1).
the most favourable prices, resulting in manager should negotiate the most
unnecessary losses (1.5).
favourable price (1).
5. Adequate controls are not in place so There is a risk that unnecessary spare
that unnecessary orders are cancelled parts are ordered resulting in liquidity
(1).
problems or wastage/increased storage
cost (1.5)
6
Orders that are not required should be
cancelled by the store manager (1).
Specific order quantity controls should be in
place (1).
AUE2602 Assessment 3 2025
Weakness
Business risk
Control to be implemented
(Max 9)
(Max 13.5)
(Max 9)
6. Incomplete orders are changed to
“completed” by the purchasing manager
eventhough the supplier is unable to fulfill
the order(1).
The items are added to inventory and
the respective creditor is credited even
though the items were not received
resulting in inaccurate record keeping
(1.5). OR
All orders not received should be cancelled
and not marked as “complete” (1).
The pending file of purchase orders in the
receiving bay should be reviewed for orders
that are long outstanding (1).
Purchase requisitions reports should be
generated and reconciled (1).
7. Daily report of orders whose
status has been changed to
“complete” is not approved for by
the store manager, therefore not
authorized.
The items are added to inventory and
the respective creditor is credited even
though the items were not received
resulting in inaccurate record keeping
(1.5).
All orders not received should be cancelled
and not marked as “complete” (1).
The pending file of purchase orders in the
receiving bay should be reviewed for orders
that are long outstanding (1).
Purchase requisitions reports should be
generated and reconciled (1).
8.There are daily reports on outstanding This may be cumbersome as the Reports should be printed out weekly to be
items (1).
intended effect of the reports may be followed up (1).
lost due to the risk of unnecessary
errors because of possible duplication
of activities (1.5).
9.Orders are generated daily for items There is a risk that an item may be Pending orders should be taken into account
that are already reflected as “pending” ordered more than once resulting in when orders are generated (1).
(1).
unnecessary losses and surplus stock
(1.5).
7
AUE2602 Assessment 3 2025
Weakness
Business risk
Control to be implemented
(Max 9)
(Max 13.5)
(Max 9)
10.Inventory is updated as soon as the
part is received, while the liability is only
accounted for when the invoice is
received (1).
The liability may not be recorded in the GRN’s not matched with invoices should be
correct period, which may result in an accounted for in a suspense account (1).
understatement of liabilities at year end
(1.5).
11.The quality (1) and quantity of goods
is not checked upon receipt by the
receiving clerk (1).
The receiving clerk does not compare the
goods received against the supplier
delivery note (1)
The discrepancies between what was
ordered
and
delivered
is
not
acknowledged by the suppliers delivery
personnel (1)
Short deliveries may not be detected
resulting in inaccurate record keeping of
inventory (1.5).
Damaged parts or goods not of required
quality may be accepted resulting in
reputational damage to MM (1.5).
All spare parts should be counted upon
receipt and quantities should be agreed to the
supplier’s delivery notes (1).
No parts should be accepted unless they
have been checked for quality (1).
All discrepancies between what was ordered
and delivered should be acknowledged by
the suppliers delivery personnel by means of
a signature (1).
12. There are no procedures in place to Input VAT may not be able to be
ensure that invoices received are valid claimed if a valid tax invoice is not
tax invoices for VAT purposes (1).
received resulting in recording of
incorrect amounts(1.5).
Procedures should be implemented to ensure
that all invoices received are valid VAT
invoices (1).
There should be isolation of responsibility (1).
13. Extensions, additions and casting on Incorrect
amounts
relating
to All invoices should be checked for accuracy
invoices and VAT calculations on purchases, liabilities and VAT may be and initialled by the accounts payable clerk
suppliers invoices are not checked (1).
processed resulting in the recorded (1).
entries not being accurate and
possibility of calculation errors exists.
(1.5).
8
AUE2602 Assessment 3 2025
Weakness
(Max 9)
Business risk
Control to be implemented
(Max 13.5)
(Max 9)
14. The inventory control account is not Missing inventories and errors may be The inventory account should be reconciled
reconciled with the inventory balance on undetected resulting in accurate regularly with the inventory records (1).
a regular basis(1).
accounting records (1.5).
15. The accounts payable account is not Processing errors may go undetected The accounts payable account should be
regularly reconciled with the accounts resulting inaccurate accounting records regularly reconciled with the accounts
payable records(1).
(1.5).
payable records (1).
18 available marks
24 available marks
20 available marks
9
AUE2602 Assessment 3 2025
Please note that the weaknesses listed in the table may not be all the weaknesses in the system.
We draw your attention to the fact that these weaknesses were found during our normal audit.
Please feel free to contact us should you have any further queries.
Regards
Yours faithfully
P Partner
60 available marks
Communication skills: Presented in tabular format
Communication skills: Written in email format
31.5 maximum marks
(1)
(0.5)
Note: Only the first 9 weaknesses should be marked. Business risk and control to be
implemented must be matched to the correct weakness.
Risk column: Only award full 1.5 marks if the student mentions the indicator as well as the effect.
10