Q27 Mansard, Gable and Hip

Bribery prevention policies

Consequences

 Mansard will be liable for any bribery acts performed by its employees
 Its global in scope
 Tarnish Mansard’s reputation and may lose potential clients
 Fines and penalties may be imposed on Mansard
 In the worst-case scenario, the operating license of Mansard may be revoked threatening
their going concern assumption
 Incur legal costs to defend the case in Court
 Negative impact on cashflow and profits

Recommendations

The management should incorporate the following:

 Embed anti-bribery culture within the organization

 Establish whistle blowing procedures
 Make improvements to the procedures as and when it is necessary
 Continuous risk assessment to identify potential bribery situations
 Top level commitment

Employee references

Consequences

 May hire incompetent employees who will not fit into the job scope
 May hire poor integrity employees
o Mistakes and fraudulent activities may be undertaken by these employees
 Incur additional costs to rectify these mistakes / retrain these employees
 Adverse / negative impact on cashflow and profit

Recommendations

 Communicate to the HR department that all employees must include a minimum of two
references within their application form and this condition should be stipulated within the
employment contract
 One of the references must be from the previous employer
 Without the references, their employment will not be confirmed and may be terminated
after a period of time
 Implement monitoring procedures

Not following accounting policies

Consequences

 This would result in material misstatements in the financial statements and with both
revenue and profits overstated
 Mansard would pay additional taxes and bonuses would have been paid for non-existent
revenue.
  Ill-informed decisions would also be made by the management of Mansard as the
information reported would be unreliable. This would have a negative impact on both its
cashflow and profits.

Recommendations

 Standardized monthly returns should be circulated to all branches

 It should be communicated to all the local accountants to use the standardized monthly
returns when reporting to the head office
 An authorized employee in the head office should then review the returns. Any differences
must be investigated and corrected prior to approving it by way of an initial.
 Disciplinary actions if the policies are not adhered with
 Implement monitoring procedures

Gable

 Total misstatements amount to $535k (220+340-25) and is deemed material as it represents

7% of PBT and 1.3% of TA.

 As the NCA has been disposed, it should be removed from the NCA register and failing to do
so would result in an overstatement of NCA.

 In addition, the recoverability of the overpayment is now doubtful and in accordance with
IAS 37, a provision should be recognized. Refusal to adjust by the management would result
in an overstatement of assets and similarly this represents a disagreement.

 Hence, a modified report should be issued on the grounds of material misstatement. It is

unlikely to be pervasive as the misstatement is contained to specific sections of the FS.

 A qualified opinion should therefore be issued. An explanation together with its impact
should be included after the opinion paragraph under the heading “Basis of Qualified
Opinion”.

11 red @ 0.5 mark per point = 5.5 marks

Hip

 $170k (185-30) represents 11.3% of PBT and 3.2% of TA is material to the FS.

 As there are no alternative procedures to substantiate the amount due from Dome together
with the existence of the debts, we should therefore issue a modified report on the basis of
insufficient evidence.

 It is unlikely to be pervasive as the misstatement is contained to specific sections of the FS. A

qualified opinion would therefore be appropriate.

 An explanation together with its impact should be included after the opinion paragraph
under the heading “Basis of Qualified Opinion”. In addition, we are unable to confirm that:
 o proper accounting records were kept; and
o we have received all information and explanations.

 12 red @ 0.5 mark = 6 marks