Fine and Sage APA Test 2013 Q RO PDF

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Statutory considerations question...

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2013 RO301/RO351 Page 1 of 2 pages RO301 TEST 2/ QUESTION 1 FINE AND SAGE QUESTION 1

(15 MARKS: 19 MINUTES)

(PART A, B AND C ARE UNRELATED) PART A

(8 Marks)

Fine and Sage is a small audit firm in Port Elizabeth. All three partners, Gerry Fine, Tom Sage and Mrs Cat Nap are registered with the Independent Regulatory Board for Auditors (IRBA). Fine and Sage are in charge of all the assurance engagements (including auditing of companies) of the firm, while Mrs Cat Nap is for all practical purposes the practice manager and is also in charge of all the secretarial and accounting services provided to clients. The following people are, inter-alia, employed by the firm: 1.

Mrs Ademi Pastel - heads up the bookkeeping department. This department performs and maintains the accounting and bookkeeping services for a number of small businesses. She has 10 years’ experience in her field as well as a B.Com degree from NMMU.

2.

Mr Mark Goldman - a qualified lawyer with an honours degree in company and taxation law and who has worked for the South African Revenue Services prior to his employment with Fine and Sage. He deals with all tax related matters for the firm’s clients.

3.

Ms Asake Mali - manages the audits for the majority of the firm’s major clients. She has completed the necessary training contract and completed the Part 1 of her qualifying examinations (ITC) but has unfortunately due to work pressures been unable to pass the Part 2 of her qualifying examinations (APC).

The three partners have recently decided to convert the partnership into a company in order to protect themselves as shareholders from being liable for the debts of the company in their personal capacity. All three partners will become directors and shareholders of the newly incorporated company. Due to the years of dedication and invaluable assistance given to the company, the three partners have decided to offer Mrs Mali and Mr Goldman a shareholding in the new company and to offer Mrs Pastel an appointment as a director of the newly incorporated company.

YOU ARE REQUIRED TO: a)

Discuss the concerns you may have with the reason for the current partners’ decision to convert from a partnership to a company in terms of the Auditing Profession Act. (3)

b)

Discuss, with reasons, any other concerns you may have regarding the proposed structuring of the company’s management and shareholding in terms of the Auditing Profession Act. (Ignore any further information that may be imparted in PARTS B and C of this question.) (5)

2013 RO301/RO351 Page 2 of 2 pages QUESTION 1 (CONTINUED) PART B

(3 Marks)

Subsequent to the above it was discovered that Mrs Cat Nap was convicted of fraudulently misrepresenting the 2013 annual financial statements of Bedding Retailers (Pty) Ltd in which she is the only shareholder and director. The company’s bankers and other creditors have reported the matter to the Independent Regulatory Board of Auditors (IRBA). YOU ARE REQUIRED TO discuss the ramifications of this information on Mrs Cat Nap‘s shareholding and directorship (assuming the auditing firm was incorporated) and whether and under what circumstances the incorporated company can buy back her shares (as per the Auditing Profession Act).

PART C

(4 Marks)

Mrs Cat Nap resigned and left Fine and Sage shortly after it became known to the other partners that she had been convicted of fraud. 1.

Mrs Cat Nap cancelled her registration with IRBA due to her no longer being a partner in an audit firm.

2.

She decided to enter into a contract with a friend, Mr No Good, of “No Good Auditors”, a sole practitioner and a registered auditor with IRBA. It was agreed to change the name of the auditing firm to “No Good & Associate Auditors” and Mrs Cat Nap would be appointed as an Audit Manager.

3.

Mr No Good and Mrs Cat Nap have agreed, inter alia, on the following:  

Mrs Cat Nap will share in the profits of the auditing firm. Mrs Cat Nap will sign audit reports of the audits she conducted.

YOU ARE REQUIRED TO discuss the actions of Mrs Cat Nap and Mr No Good taken in Part C, in terms of the Auditing Profession Act....