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
a) In both scenarios, there are clear ethical issues that arise. Accepting a gift at the beginning of an audit engagement, as Tony Stark did in Scenario 1, goes against the Code of Ethics for Professional Accountants. Additionally, the lack of disclosure of Sandra's benefits in the financial statements is also unethical. In Scenario 2, the CEO's close relationship with government officials and the misleading documentation of expenses are unethical practices. Therefore, neither scenario is permissible in terms of the Code of Ethics.
b) The audit committee plays a crucial role in ensuring good governance within an organization. They are responsible for overseeing the financial reporting process, internal controls, and the external audit process. The King codes, specifically King IV, provide guidelines for corporate governance in South Africa. By following these codes, organizations can ensure transparency, accountability, and ethical behavior.
c) The internal audit activity is an essential function within an organization as it provides independent and objective assurance on the organization's operations, risk management, and internal controls. Internal auditors help to identify and mitigate risks, improve operational efficiency, and ensure compliance with regulations and policies.
For example, an internal audit team could have helped identify the carbon emission discrepancies in Scenario 2 and investigate the expenses documented as directors' travel allowances. By conducting regular audits and reporting findings to management and the audit committee, internal auditors can play a crucial role in improving governance and accountability within an organization.