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.
QUESTION 3
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
a) Scenario 1: The actions described in Scenario 1 are not permissible in terms of the Code of Ethics for auditors. Accepting a gift from a client at the beginning of an audit engagement can impair the independence and integrity of the auditor. Additionally, the failure to disclose Sandra's benefits in the financial statements goes against the principle of transparency and accuracy in financial reporting.
Scenario 2: The actions described in Scenario 2 are also not permissible in terms of the Code of Ethics for auditors. Falsifying carbon emission data and mischaracterizing expenditure as directors' allowances are violations of integrity and objectivity, which are fundamental principles of the Code of Ethics.
b) The audit committee plays a crucial role in ensuring governance in an organization by overseeing the financial reporting process, internal controls, and external audit function. The King codes, specifically King IV, provide guidelines on corporate governance principles and practices that organizations should adhere to. By following these codes, organizations can promote transparency, accountability, and ethical behavior.
c) The internal audit activity plays a key role in an organization's risk management and control processes. Internal auditors provide independent and objective assurance on the effectiveness of governance, risk management, and internal control processes. They help organizations identify and mitigate risks, improve operational efficiency, and ensure compliance with laws and regulations.
For example, in a manufacturing company, the internal audit activity may focus on assessing the effectiveness of production processes, inventory management, and quality control measures. By conducting regular audits and providing recommendations for improvement, internal auditors can help the organization achieve its objectives and enhance overall performance.
Overall, the internal audit activity should be integrated into the organizational plan to ensure that it contributes to the achievement of strategic goals and objectives while maintaining independence and objectivity in its assessments.