A Leader in Accounting Education Accountancy@UJ AUDITING 2A — 2014 INAL ASSESSMENT OPPORTUNITY 31 MAY 2014 FIRST EXAMINERS: MRS S VENTER MR W MALHERBE TIME: 120 MINUTES SECOND EXAMINER: — MRS V VAN DYK MARKS: 100 MARKS INSTRUCTIONS: 1. This paper consists of eight pages. If your paper does not contain all the pages, please put up your hand so that a replacement paper can be handed to you 2. Answer all the questions, 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. 4. _Allthe examination regulations of the UJ and the policy document for students of the Department of Accountancy will apply during this assessment. Keep this paper for your own records. The neatness, disclosure and presentation of your answers will be taken into account when marking your paper. 7. Read questions carefully, if you need to provide explanations you should always use full sentences, refrain from simply naming facts. Page 1 of 8QUESTION 1 25 MARKS PART A 42 MARKS Extract from: The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. When | hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," | am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are-or would be if they or anyone else took them seriously preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades. The discussions of the “social responsibilities of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. YOU ARE REQUIRED TO: MARKS Milton Friedman's “Shareholder dominant theory”, as described (a) | above, is challenged by the Edward Freeman's stakeholder theory. | (3) Explain his “Stakeholder theory" Discuss Edward Freeman and William Evan's arguments that challenge the “Shareholder dominant theory" Kenneth Goodpastor takes issue with Freeman’s "Stakeholder theory” in an article entitled "Business Ethics and Stakeholder Analysis” Discuss the impracticalities of the stakeholder theory as stated by Kenneth Goodpastor. () © (3) TOTAL MARKS (12) Page 2 of 8QUESTION 1 25 MARKS PART B 13 MARKS Extract from: Wikipedia The Free Encyclopedia Itis said that the term ‘money laundering’ was coined from the practice of the American mafia who, at one time, channelled the cash proceeds of crime through laundrettes to legitimize the cash. Whether this is true or not, the term ‘money laundering’ is now widely used. Money obtained from certain crimes, such as extortion, insider trading, prostitution, drug trafficking, illegal gambling or tax evasion is "dirty". It needs to be cleaned to appear to have derived from non-criminal activities so that banks and other financial institutions will deal with it without suspicion. Originally, the term applied to real money but now money laundering applies to the proceeds of crime that are laundered using a variety of monetary instruments including securities, digital currencies such as bitcoin, credit cards, and traditional currency. Money can be laundered by many methods, which vary in complexity and sophistication. YOU ARE REQUIRED TO: MARKS (a) | Discuss whether “money laundering” would be regarded as @[ fraudulent event, ® {p) | Discuss the methods and approaches management can implement to | 7 prevent fraud in an organisation. a” TOTAL MARKS (13) Page 3 of 8QUESTION 2 33 MARKS SHAWLO Lid is a very successful, JSE listed pharmaceutical company based in Johannesburg Lindsay McClaren was recently appointed as the executive assistant to Mr Willem Rust. With the next board meeting happening within her first week of employment the following list of attendees was given to her to familiarise herself with the members. It was made clear that this is the complete list of the board members. Name &| Age | Demographical | Additional information | INED 7 surname Composition NED / ED Ntandazo 45 | Black African | Mr Ntsasa assisted with INED Ntsasa male some consulting with regards to a marketing strategy. He is compensated for his services as director with a fee based on the increase in revenue He has been an independent non-executive director for 2 years. He has a very good relationship with the | remuneration committee Jones Tafeni | 32 | Black African | Mr Tafeniis well-connected in | NED male the industry and is paid small monthly fee for access to his network and introductions to strategic relationships Willem Rust 52 | White African | Mr Rustis the financial ED male director of SHAWLO. Michael Fente | 44 | Black African | Mr Fente is the operations | ED male director of SHAWLO Mbali Fente 29 | Black African | Ms Fente is the human ED female resources director of SHAWLO. Thabo Lubisi_ | 49 | Black African | MrLubisiis the research 7 | ED male development (R&D) director of SHAWLO Classification of directors is done by the Remuneration Committee as follows: © ED - Executive director * NED - Non-executive director © INED ~ Independent Non-executive director Ms McClaren was asked by Mr Rust to the make some informal notes that he wants to take into the meeting. Find below an extraction from these notes: Page 4 of 8Get feedback from the Risk Committee on the progress of newly implemented Information Technology (IT) risk management Follow up progress of the integrated report for the current year. The previous year's integrated report was not prepared, and the same cannot happen in the current year again. Discuss with Mbali Fente (the current chairman of the Audit Committee) regarding the current progress of the Audit Committee as the board doesn't usually obtain feedback from the Audit Committee at their meetings each semester. Ask the remuneration committee to assist in the current need for independent non-executive directors by them identifying suitable candidates to form part of board sub-committees. There is currently only one independent non-executive director and therefore insufficient members for sub-committees. Page 5 of 8YOU ARE REQUIRED TO: | MARKS Identify and explain any suspected contraventions of the Code of Corporate Governance for South Africa (King II!) by making use of the @) | following table: (2) King Ili Contraventions __| King lil Requirements PRESENTATION AND LAYOUT (1) TOTAL MARKS (33) Page 6 of 8QUESTION 3 42 MARKS In 1996, Barry Adams, a registered nurse (RN) worked on a sub-acute care unitin a New England hospital, Adams became increasingly concerned about the quality, safety, and dignity of patient care as the hospital implemented staffing cuts and cost containment measures. He carefully documented unsafe practices and correlated these with inadequate staffing and a lack of adequate supervision of inexperienced nurses. There was an increased incidence of patient falls, treatments not being completed, and serious medication errors. These incidents resulted from a substantial increase in the nurses’ patient assignments. For three months, Adams and other nurses followed precisely the process outlined by the organization to communicate concerns to hospital administrators. He soon realized that the administrators were not interested in using the information he provided to correct the situation; in fact, he was harshly oriticized for collecting this information, He further experienced organizational stonewalling, and hospital administrators started questioning his mental health. He then decided to proceed with a variation of the traditional saying: "If it's not documented, it's not done" and, instead, adopied the approach: "ifit's not done, document it!” Also, at one point he refused to take narcotic orders from a technician working for a physician, citing that this was against the Nurse Practice Act. He then supplied the information he gathered and documented to a local newspaper. Adams was threatened with the loss of his job and, in spite of previous performance reviews that were excellent, he was eventually fired. He sued and after a long period of difficult court proceedings he won his case (his attomey was an RN). The hospital appealed and lost again. Five units of the hospital have since closed ‘for financial reasons." Source: http:/www.nursingworld.org/ojin/topic8/topic8_3.htm (adapted) Page 7 of 8YOU ARE REQUIRED TO: Discuss the elements of whistle-blowing that are evident in the ® | above scenario. ® Discuss at the hand of Aristotle's Virtue theory whether the (0) | actions and practices of the hospital could be considered tobe | (6) ethical or not. Give examples as to how the hospital could practically pre-empt | (49) (©) | whistle-biowing with ethics. a) _ | entity and discuss the two myths that are evident in this - (¢) scenario. 6) (@)_| Discuss the typical ethical response that an organisation should | gy have towards a whistle blower. ( OVERALL PRESENTATION (1) TOTAL MARKS (39) OVERALL PRECISION AND INTERPRETATION MARKS FOR THE rs ENTIRE ASSESSMENT Page 8 of 8