QUESTION 4 (20 marks)

You are the auditor of Shield Ltd, a listed company which owns a number of manufacturing, and retail
companies specializing in the Beauty Industry. You have been invited for a coffee with the financial
manager as he has a number of questions he wishes to discuss with you. During the meeting, the
following questions were asked:

I hear that a company is allowed to make loans to individuals to buy shares in the company itself. Is
this correct? I always thought that it was specifically prohibited or has something to do with Black
Economic Empowerment. Is that true? (4)

What is the difference between the Annual General Meeting and a General Meeting, can you give me an
example of what we would deal in each of those meetings? (4)

In regard to a General Meeting, when we pass a special resolution what is the notice period thereof, and
then what is the notice period of a general resolution? (3)

Can the directors issue shares? What are the matters to take into account? (4)

YOU ARE REQUIRED TO:

Answer the question posed by your clients financial manager.

QUESTION 3

3.1
The following group structure relates to the group of companies:

Environ-Agri (Pty)
Ltd

Environ-Grow (Pty) Environ-Paint (Pty) Environ-function

Ltd Ltd (Pty) Ltd

The group of companies as shown above are comprised of and explained as follows:

The holding company: Enviro-Agri (Pty) Ltd is a manufacturer of organic material used in the use
of fertilizers for purposes of growing organic fruits & vegetables.
Subsidiary No. 1: Environ-Grow (Pty) Ltd is growing organically grown fruit & vegetables which it
sells to retailers nationwide.
 Subsidiary No. 2: Environ-Paint (Pty) Ltd is manufacturing organic paint material and
environmentally friendly paint brushes for profit.
Subsidiary No. 3: Environ-function (Pty) Ltd is a distribution centre for the group, distributing the
organically grown fruits, vegetables and the products manufactured by Environ-Paint.

The following transactions/actions pertain to the group, for the year ended 28 February 2015:

a) In December 2014, Environ-Grow requested a loan from Environ-Paint with the purpose
of acquiring shares in the holding company, Environ-Agri.
a. Discuss the general provisions of the companys act that would apply. (4)
b. State what other factors could be considered before providing such a loan to a
company. (3)

b) Assuming the same information as given above, Environ-Agri is now a financial

institution providing loans to local organic farmers.
a. State whether Environ-Grow would still be in contravention of the companies
act and state reasons therefore. (2)
b. State the full exceptions to this relevant section as per companies act. (3)
c. State what would be the duties of the auditor relating to any contraventions
hereof. You need not state the reporting requirements! (1)

c) During the year, Environ-Agri declared dividends of N$ 2,50/share held, totalling N$

2,500,000 dividends. State what the directors and shareholders had to consider in terms
of the companies act. (2)
d) Environ-Agri has 10 directors on its board of directors. During the year they have decided
to renovate their office space and for the purpose have issued a request for tender to
prospective suppliers. One of these suppliers is Refreshed spaces CC a medium sized
close corporation owned by one of the directors. Isaacs Hendricks and his wife, together
with 3 other business partners. The next board of directors meeting is scheduled to be
held 3 August 2015 with the purpose of approving a supplier to do the renovations.
a. State the requirements that must be met by Isaacs Hendricks according to the
companies act. (5)
QUESTION 2 (35 marks)
You are a member of the audit team which has recently completed the audit of Twenty Twelve Limited (TwentyTwelve) for the
year ended 30 April 2012. Twenty Twelve is listed on the NSX and invests and takes management responsibilities for businesses
in the leisure industry in Southern Africa and overseas. Every year, the members of the audit firm stay in one of the resorts
managed by the company for their annual partners conference.

On 9 June 2012, the partner in charge of the audit attended the audit committee meeting during which the financial statements
and other financial matters were discussed. The audit committee consists of the chairperson of the board of directors of
TwentyTwelve, the Chief Executive Officer (CEO), who also acts as the chairperson of the audit committee, the finical director, the
operations director and one other executive director. The audit committee recommended that the financial statements be
approved by the Board of Directors of TwentyTwelve.

You were reading through a press release highlighting the excellent financial results of TwentyTwelve for the year ended 30 April
2012, when you received a phone call from Danie Maree, the financial manager of TwentyTwelve. Danny was clearly upset about
something and wanted to discuss certain issues relating to the audit of which you were not aware, with you. Danny asked for
advice on the following issues:

The financial director instructed the financial controllers of all divisions not to recognize certain trading expenses during April
2012. The affected expenses were therefore only recorded and paid during May 2012. Danny is also aware of the fact that the
financial director was under tremendous pressure from the Board of Directors to meet certain earnings targets. As a result of
positive external communications throughout the year, analysts, following the share price, expected a 30% increase in the earnings
per share.

YOU ARE REQUIRED TO:

List and explain any specific corporate governance or ethical concerns apparent from the information above. Also, suggest how
the concerns should be resolved in terms of available professional guidelines.

Corporate governance and ethical concerns and how these should be resolved.