HOMEWORK ON CORPORATE GOVERNANCE

Background information
Ignore VAT unless stated otherwise.
Kufaigore General Dealers trading under Kufa-iG trade name, is one of the leading retailers in
Zimbabwe, that have a dual listing on Zimbabwe Stock Exchange (ZSE) and the Johannesburg
Stock Exchange (JSE) since 1997 and 2005 respectively. Kufa-iG was formed by an Indian
family who migrated to Zimbabwe during the height of the 2nd Chimurenga liberation war of
struggle in 1974 and settled in Rusape. When the family settled, they realised that Rusape
residents were struggling tooth and nail to have access to basic commodities and realised that
a business opportunity existed which could be exploited profitably.
Rusape`s problems emanated from her reliance on Harare and Bulawayo for basic
commodities because the once thriving industry within their small town was forced to suffer
premature death by the hostile minority Smith regime which accused the town to have been
of great support to the guerrilla liberators (known as Vana-Mukoma) who were fighting his
minority rule. In response retaliatory moves were implemented which saw roadblocks being
mounted on major highways that connect Rusape with Harare and Bulawayo which often
resulted in sending back to Harare or Bulawayo the delivery trucks with basic commodities
meant for Rusape residents.
The Indian family searched for alternative sources of supplies from Mutare and as far as
Mozambique despite the move being fraught with danger of being killed by the settlers. In
1975 they started with two tuckshops in Tsanzaguru, an area in Rusape, but due to the
incessantly overwhelming demand for basic commodities as well as unwavering support from
Vana-Mukoma who ensured safe passage of deliveries from Mozambique and Mutare, Kufa-
iG was necessitated to rise to the stardom at lightning speed that as early as 1976 they were
owning close to five supermarkets and thirteen tuckshops in Rusape. The aura of 1980
independence opened a floodgate of opportunities to Kufa-iG and with the assistance of Small
Enterprise Development Cooperation (SEDCO) which extended lines of credit, Kufa-iG
managed to open supermarkets in all major cities of Zimbabwe and by the 1990s it also had
presence in all small towns. This great success necessitated Kufa-iG`s listing on ZSE in 1997
and is considered to be one of the blue-chip companies on the counter and a major
contributor to the fiscus in terms of both taxes and employment.
Below are the working paper of Kapaya-Tilly (KT) pertaining to 30 September 2019 financial
year (FY2019), You are a 2nd year trainee and audit supervisor on the engagement of Kufa-iG:

Working Paper “WP” Description

WP/01 Client acceptance or continuance.
WP/02 Governance Report.

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Entity Name: Kufa-iG.

Financial year: 30 September 2019. WP/01
Prepared by: Job S.
Reviewed by: Douglas M.
Subject: Client acceptance or continuance
Kapaya-Tilly (KT) was appointed statutory auditors of Kufa-iG in September 2016 financial
period. The reason for KT`s appointment was their excellent track record and second to none
auditing technical expertise which made them reputable within Zimbabwe and SADC region.
However, KT was not spared by the brunt of increasingly deteriorating economic environment
currently being observed in the country and as a result they have suffered massive brain drain
as most of their employees are leaving Zimbabwe for greener pastures. KT is not sure the extent
to which the situation will affect their operations and chances are that more employees could
leave because of their track record for technical excellence and expertise that has led to
competing audit firms outside the country to headhunt KT’s employees with lucrative
remuneration packages.
Despite the situation KT`s managing partner, Andrew Nhawatawa (AN) believes that business
has to go forward and he is implementing some mitigatory measures like accepting additional
non-assurance engagements with existing clients. The following relates to Kufa-iG engagement.

Engagement • Initially a thirteen member team was assigned to the engagement,

team appropriately balanced in terms of experience and qualifications
composition. however, during the year seven of the most qualified and
experienced team members left KT for Fara`o Islands, leaving the
team in the hands of two senior members who are yet to sit for their
last exam, before qualifying as CAs in November this year. The rest
of team members are still doing CTA.
• No additional team members were introduced to this engagement
since other KT`s clients are facing similar challenges, but Andrew
agreed to provide assistance here and there but could not be fully
dedicated to any specific client due to other commitments.
• Two first year trainees on the engagement team, Kudzi and Lessley
have contract farming with Kufa-iG to provide them with free range
chickens until 2021 and a 7.5% stake-ownership in Kufa-iG
respectively.
• To plug in the dwindling workforce KT is recruiting undergraduate
students mainly on distance education or on parallel programs (i.e.
students who study after working hours) or with a degree in finance.
Andrew believes accounting and finance are closely related and with
support from KT methodology they can easily catch up.
• Six new recruitments were made, three 3rd year undergraduate and
finance graduates. One of the new recruits Thobias is under a 2-year
suspension for bribing lecturers at his University to have a copy of
the final exam paper is part of the engagement team of Kufa-iG.

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• Andrew was not aware of this fact at the time of recruitment but
once the KT human resources (HR) department brought the matter
to his attention he felt that it was trivial university thing that is
pardonable since everyone deserves a second chance.

Other • Kufa-iG asked KT to assist with the finalisation of the preparation of

engagements. their financial statements since it lost their experienced staff within
the accounting and finance department (W/P03). KT accepted the
offer as their involvement would reduce the risk of errors and
necessitate quick finalisation of audit. The additional work would
also beef up KT’s declining revenue base.
• This makes Kufa-iG one of KT`s biggest revenue earner.

Leadership • AN, the managing partner at KT does not offer so many

opportunities. opportunities to partnership level. To date KT has three partners in
place.
• He will be in India attending a very important strategic meeting
especially during the last two months of Kufa-iG`s audit, rather he
delegated to Chipo, the audit manager the duty to sign the audit
report on his behalf.
• The cost structures of KT cannot allow hiring of engagement quality
control reviewers and Andrew believes that stringent processes at
KT will suffice to ensure the best quality for all engagements.

Remuneration. • Despite the galloping inflation since January 2019, the partnership
has not responded attempts to negotiate the welfare of employee
at KT. Resultantly most of employees often arrive late at work or
clients because they have to queue for cheaper public transport.
• Despite being fully aware of this AN insists that the clients have to
be billed including hours spend in queues since it presents time
allocated to the clients' work.

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Entity Name: Kufa-iG.

Financial year: 30 September 2019. WP/02
Prepared by: Tinei G.
Reviewed by: Felistas S.
Subject: Governance Report.
Kufa-iG has always been regarded as a company with an excellent corporate governance culture.
The following resolutions were made and implemented (as per the board minutes meeting
dated 13 May 2019). Kufa-iG complies with both King IV code and the National Code on
Corporate Governance.
Conflict resolution committee (CRC)
With respect to conflict resolution committee (CRC) members agreed to do away with the
services of non-executive directors and only utilise executive directors and proposed that no
board fees will be paid to them since they are already on the company`s payroll. Kufa-iG`s
secretary, Henderson, was pleased by a resolution to dissolve the CRC, because he had always
argued that he did not see the purpose of the CRC. Executive directors agreed to the resolution
to do away with non-executive directors, subject to Kufa-iG advancing financial assistance
equivalent to 10% of their gross annual salaries. The funds were immediately paid into the bank
accounts of all executive directors on 20 May 2019. The directors resolved to award all non-
audit assurance engagements to KT such as the finalisation of the preparation of the financial
statements. Annual financial statements are approved by the CEO and management.
Risk management
Kufa-iG hired one of the best risk management teams from rival retailers and they have so much
confidence in the team’s ability and as a result the board, left the team to identify Kufa-iG`s risk
tolerance and overall risk management. Due to work pressure the risk management team, has
not managed to review or update the company`s risk register. The matter was initially
discovered by Kufa-iG`s internal audit which quickly brought the matter to the audit committee`s
(AC) attention. Further investigations (via whistleblowing) by the AC revealed that the risk
committee have not performed risk assessment as consider it a time-wasting exercise. The
discovery by the internal audit department disappointed most of Kufa-iG`s directors who have
been unlawfully benefiting from the laxing of controls and they unanimously recommended the
disbanding of the internal audit function for putting their nose where they are not invited.
Information management and disclosure
Kufa-iG`s does not have any written down policy when it comes to information governance, they
rely on word of mouth since the process is considered as cumbersome. Previously Kufa-iG used
to get independent assurance about their ICT but have since stopped the practice 2 years ago to
save costs. The information management disclosures are made once every two years.

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REQUIRED MARKS
A. Write an email to Kufa-iG`s board discussing corporate governance 15
concerns that are arising in working paper “W/P02 in terms of the
National Code of Corporate Governance (ZimCode). (14 marks)
Presentation and communication style. (1 mark)

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