QUESTION ONE
[20 MARKS]
You are the audit manager of T&T Associates, a medium sized firm of accountants. Your firm has
just been asked for assistance from Kolobs & Co, a firm of accountants in an adjacent country.
This country has just implemented the internationally recognised codes on corporate governance
and Kolobs & Co has a number of clients where the codes are not being followed. One example
of this, from Wingright, a listed company, is shown below. As your country already has appropriate
corporate governance codes in place, Kolobs & Co have asked for your advice regarding the
changes necessary in Wingright to achieve appropriate compliance with corporate governance
codes.
Extract from financial statements regarding corporate governance
Mr Shipanga is the Chief Executive Officer and board chairman of WINGRIGHT. He appoints and
maintains a board of five executive and two non-executive directors. While the board sets
performance targets for the senior managers in the company, no formal targets or review of board
policies is carried out. Board salaries are therefore set and paid by Mr. Shipanga based on his
assessment of all the board members, including himself, and not their actual performance.
Internal controls in the company are monitored by the senior accountant, although detailed review
is assumed to be carried out by the external auditors; WINGRIGHT does not have an internal
audit department. Annual financial statements are produced, providing detailed information on
past performance.
You are required to
Write a memorandum to Kolobs & Co which:
(a) Explains why Wingright does not meet international codes of corporate governance
(b) Explains why not meeting the international codes may cause a problem for Wingright, and
(c) Recommends any changes necessary to implement those codes in the company.
(20 marks)
QUESTION TWO
[25 marks]
A friend of yours, Reg Park, recently purchased all the shares in Crazytimes (Pty) Ltd, a
wholesaling company which sells all kinds of goods for outdoor pursuits, e.g. skateboarding,
BMX, kayaking etc. The company sells only on credit. Debtors pay only by cheque or EFT. The
previous owners who were also the directors, spent more time engaged in outdoor pursuits
than in looking after the business, choosing to leave the running of the business in the hands
of various “managers” and other employees. The goods which the company sells are popular
so the business has survived this ownership neglect, and your friend (an entrepreneur) sees
potential in the company. He asked you to have a look at the accounting system and