FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting

DEPARTMENT Department of Accountancy
MODULE NAME Governance and Control 2A
MODULE CODE GAC02A2/GAC02B2/GAC2B01

ASSESSMENT DATE 26 April 2019

ASSESSOR(S) Mr Waldo Oberholzer
MODERATOR(S) Ms Rozanne Smith
DURATION: 170 minutes
Reading time 20 minutes Writing time 150 minutes
TOTAL MARKS 100 marks

NUMBER OF PAGES OF QUESTION PAPER

7
(including cover page)

INFORMATION/INSTRUCTIONS:
___________________________________________________________________
1. During the reading time you may make notes on your question paper, but may
not write in your answer booklet.
3. Delete all (even single open lines) open spaces on your answer sheets with pen.
Pages on your answer sheets that contain open spaces will be marked as such
and those pages will not be eligible for a remark.
4. No tippex or pencil may be used on your answer sheets. Pages on your answer
sheets that contain pencil or tippex will be marked as such and will not be eligible
for a remark.
5. All the examination regulations of UJ and the policy document for students of the
Department of Accounting will apply during this assessment.
6. Keep this paper for your record purposes.

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7. The neatness, disclosure and presentation of your answers will be taken into
account when marking your paper.
8. Answer all the questions.
___________________________________________________________________

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 QUESTION 1 44 MARKS

You have recently been appointed as a manager at UJ-Land Ltd (hereafter UJ-Land)
due to your vast knowledge regarding business cycles, business risks as well as
business risks within the Information Technology environment. A part of your job
description is to assist Theo Wessels, the Financial Manager of UJ-Land with various
internal control related matters.

BACKGROUND INFORMATION
UJ-Land is a newly incorporated company with its first revolutionary amusement park
being built in Johannesburg. The first financial year-end of UJ-Land was 31 December
2018. Administrative and general messages as well as orders and invoices are sent
directly to a UJ-Land central email address. Most managers and employees have
access to this email address in order to forward emails to the Financial Manager (Theo
Wessels) who deals with all payments. Hence, ensuring a swift response turnover to
all the stakeholders of UJ-Land.

CONSTRUCTION OF THE ‘THRILLER RIDE SECTION’

Amongst other service providers, UJ-Land contracted Made-in-China Limited
(hereafter MIC), a large construction company in China to provide and construct roller-
coasters for the UJ-Land ‘Thriller ride section’. Hiring MIC and purchasing their goods
will fast track the construction process and cut costs to ensure an earlier launching
(initial opening) date for the amusement park.

Shortly after the completion of the UJ-Land ‘Thriller ride section’, MIC contacted Lerato
Nkosi, the Financial Director of UJ-Land to enquire why UJ-Land did not yet pay the
outstanding invoices relating to the construction of the UJ-Land ‘Thriller ride section’.
In the correspondence, MIC included a statement of account indicating that UJ-Land
is in arrears by 3 730 000,00 Chinese Yuan (approximately R7 978,000). Lerato
discussed the matter with Theo to determine why certain payments were late. Theo
Wessels provided Lerato Nkosi with copies of all purchase orders applicable to MIC
and showed her how these matched to the MIC invoices and bank statements. After
explaining this to Lerato, Theo realized that some of the purchases from MIC were not
recorded i.e. that no goods were recorded when delivered. During the day, a UJ-Land
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employee admitted to accidently deleting emails from the UJ-Land central email
address and did not disclose it earlier as he was afraid to tell Theo about it. Theo
Wessels then determined that this could be the reason that UJ-Land never received
all the invoices from MIC. Hence, explaining the outstanding invoices in arrears per
the statement of account received.

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QUESTION 2 35 MARKS
Theo Wessels, the Financial Manager of UJ-Land (Pty) Ltd (hereafter UJ-Land), asked
you to assist him to identify possible business risks applicable to the company. He will
review your work as your inputs will be used to present to the Risk Management
Committee of UJ-Land, the business risks of the company. He provided you with the
following extract from a document he drafted regarding various business matters:

EXTRACT: COMPANY INFORMATION TO INDENTIFY BUSINESS RISKS

The finance team of UJ-Land has a lot of experience within the amusement park
industry, however, are not familiar with the latest International Financial Reporting
Standards applicable to revenue recognition.

The current accounting records shows that the capital invested in UJ-Land is
estimated at R287 million. This is funded by 85% long-term debt whereas the
remaining 15% is funded by South African and international investors. Despite the
high ratio of debt finance, Sebelo Madibo, the Chief Financial Officer (CEO) of UJ-
Land is not concerned because there is potential of rapid growth. According to the
marketing team of UJ-Land, their market research indicates that approximately
9 000 000 guests are expected to visit the amusement park during the financial year
ending 31 December 2019.

One of the directors expressed concern that the marketing team’s estimate might
be unrealistic as it could result in the park being overcrowded. Hence, leading to
unsatisfied guests. Overcrowding might also cause employees to work overtime.
Due to temporary cash flow constraints, employee overtime is not remunerated.
Sebelo Madibo indicates that UJ-Land’s Risk Management Committee considers
that UJ-Land is a ‘new’ business. As a result, the committee admits that “not all risks
have been identified, evaluated and responded to. However, will be dealt with
accordingly as these risks are identified/encounter”. We still must focus on
evaluating and building a general control environment to align to our company
mission, vision and objective.

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For the safety and security of UJ-Land’s guests and its employees, the Thriller rides
are required to be serviced regularly. This include amongst others, the replacements
of parts on a monthly basis. These parts are imported directly from Made-in-China
Ltd (hereafter MIC), the China based manufacturer of the roller-coasters and spare
parts used in UJ-Land’s Thriller ride area. MIC is the only company that offer these
highly specialized parts.

A recent newspaper article made accusations and highlighted various “bad reviews”
about MIC stating MIC’s inability to deliver products and services on time. One
review specifically reads that “they are not always reliable”. UJ-Land is not
concerned about these as we have a long-standing relationship with MIC, and we
know what they are capable of.

Legislative and regulatory practice requires a member of the ASTM international F-

24 committee on amusement rides and devices, to conduct inspections and approve
that the park conforms to applicable standards. The inspection is scheduled to be
conducted one month after the grand opening of UJ-Land. The grand opening is
tomorrow, Saturday 27 April 2019. We at UJ-Land, are not worried about the
pending inspections and approval of the ASTM international F-24 committee
because, safety checks have already been made externally by a company
appointed by UJ-Land. In addition, UJ-Land’s Health and Safety Committee also
conducted their own internal safety checks.

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QUESTION 3 21 MARKS

The Board of Directors recently approved the design and implementation of a

sophisticated Information Technology (IT) System for UJ-Land (Pty) Ltd (hereafter UJ-
Land), called SmartLink. The system will improve the operations of UJ-Land
significantly and will ensure amongst others, accurate recording of revenue through
ticket sales. The SmartLink system was successfully implemented and tested by an
external and independent service provider. The SmartLink system allows UJ-Land to
operate all computers, linked to a central database.

Theo Wessels, the Financial Manager of UJ-Land, is aware of your in-depth

knowledge regarding business risks in the IT environment. Accordingly, he provided
you with the following query:

Query 1:
Recently, it came to my attention that the SmartLink system was subject to
unauthorised access. The unauthorised access was specifically gained via the
internet. What can control(s) can we implement to ensure that this does not repeat
itself in future?

*****END*****