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AUE2602 EXAM PACK 2023
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AUE2602 EXAM PACK2023
QUESTIONS AND ANSWERS
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THIS PAPER CONSISTS OF SEVEN (7) PAGES.
This paper consists of the following questions and main topics:
QUESTION MAIN TOPIC MARKS
1 Corporate governance, internal controls and the acquisitions and 50
payments cycle
2 Internal controls, revenue and receipts cycle, acquisition and 50
payments cycle, inventory and production cycle, payroll and
personnel cycle and finance and investment cycle
100
NOTE:
Although the primary purpose of the examination is to test your knowledge and application of the
subject matter, your ability to organise and present such knowledge in written language of an
acceptable standard will be taken into consideration by the examiners.
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QUESTION 1 50 MARKS
Modern Closets Limited is a large manufacturing company situated in Johannesburg, South Africa. They
specialise in the design and construction of closets and cabinets for private or commercial use. The
company was started in 1987 by Mr Jay and is currently considering whether it should list on the
Johannesburg Stock Exchange (JSE).
The board of directors
Mr Jay Chairperson of the board. Mr Jay was the Chief Executive Officer of Modern Closets for 20
years, but retired last year.
Ms Claire Chief Executive Officer (CEO) and CA(SA). Ms Claire is the daughter of Mr Jay.
Mr Mitch Chief Operating Officer (COO) and qualified lawyer. Mr Mitch is the son of Mr Jay.
Mrs Gloria Non-executive director and married to Mr Jay.
Mr Cam Non-executive director who currently has 1% shareholding in Modern Closets.
Mr Phil Non-executive director with no relationship with the other directors or officers of Modern
Closets.
Ms Lilly Non-executive director and partner in the legal firm that assists Modern Closets in their
business.
Mr Jay was never too concerned about the corporate governance of the company as he had a very hands-
on approach to running the business. However, Ms Claire wants to ensure that Modern Closets is following
the recommendations of the King IV Report with regard to ethical leadership.
Ms Claire also knows that her father has never appointed board committees and is concerned that they can
no longer just explain why. She wants to appoint the required board committees as soon as possible.
Internal controls
Mr Jay is not a fan of the computerised systems that have been implemented at Modern Closets over the
past few years. As such, he has never used some of the built-in functionalities. Now that Ms Claire is the
CEO, she knows that the software has different functions and can generate different reports, which can be
used to her advantage. However, she is unsure what they relate to and what would be useful to her.
She knows that the internal audit team always wants to link the controls to the control objectives being
occurrence and authorisation, accuracy and completeness.
She is specifically interested in the following control and report functionalities of the software:
a. Audit trails
b. Mandatory fields
c. Override reports
d. Validation checks
e. Activity reports
f. Sequence checks
g. Valid character and sign checks
Acquisitions and payments
Owing to the way Mr Jay ran the business, Modern Closets has always made payments by way of physical
cheques. Mr Mitch is in the process of implementing a computerised system that would make EFT payments
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to creditors possible. He wants to create a password policy for Modern Closets to inform all employees of
best password practices.
REQUIRED Marks
1.1 List the SIX (6) ethical values, which, in terms of the King IV Report, are embodied in
ethical leadership. (6)
1.2 With reference to the information under the heading “The board of directors”, advise
Ms Claire whether the current board of directors is in compliance with the requirements
of the King IV Report or not in terms of its composition and membership.
Discuss FOUR (4) issues pertaining to both compliance and non-compliance with
the King IV Report in your answer. (6)
1.3 List all the board committees recommended by the King IV Report to be appointed and
name ONE (1) main function of each committee.
Present your answer in table format, as follows:
Committee (1) Function (1½)
Example: Risk committee Example: Should consider the risk
management policy, and plan and monitor
the risk management process.
(10)
Two presentation marks will be awarded if the answer is presented in the required
format and for communication, logical reasoning and structure. (2)
No marks will be awarded for the example.
1.4 This question refers to the section entitled “Internal controls”. Describe each of the
control and report functionalities (a–f) identified by Ms Claire and link each functionality
to one control objective.
Present your answer in table format, as follows:
Control/Report functionality Description (1½) Control objective
(1)
Example: Example: Example:
a. Audit trails Audit trails provide Occurrence and
listings of authorisation
transactions, and
summaries and lists
of tables or factors
used in processing
b. Mandatory fields
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