Sakrekenaars/Calculators: Ja/Yes

Benodigdhede vir hierdie vraestel/Requirements for this paper: Ander hulpmiddels/Other

resources:
Antwoordskrifte/ Multikeusekaarte (A5)/
Answer scripts: x Multi-choice cards (A5):

Presensiestrokies (Invulvraestel)/ Multikeusekaarte (A4)/

x
Attendance slips (Fill-in paper): Multi-choice cards (A4):
Rofwerkpapier/ Grafiekpapier/
Scrap paper: Graph paper:
c
Tipe Assessering/ Class Test 1 Kwalifikasie/ B Com Chartered & &
Type of Assessment: Qualification: Forensic Accountancy
Modulekode/ GEAR371 Tydsduur/ 90 minutes
Module code: Duration:
Module beskrywing/ Auditing: Integrated Corporate Maks/ 45 marks
Module description: governance, computer controls, Max:
ISAs and statutory requirements
Eksaminator(e)/ Mrs M Weststrate Datum/Date: 17 March 2023
Examiner(s): Me T Sukhari Tyd/Time: 10:00

Instructions
1. Students may only write with a black or blue pen. You are reminded that answers may NOT be written in
pencil or erasable pen. Only handwritten attempts may be submitted.
2. The marks shown against the requirement(s) for each question should be taken as an indication of the
expected length and the required depth of the answer.
3. Answer the questions using:
• Appropriate arrangement and presentation;
• Clarity of explanation;
• Logical argument; and
• Clear and concise language.
Marks will be awarded for the above.
4. Non-programmable calculators are allowed.
5. Prescribed technical books may be used.
6. All answer books must be handed in.
7. You are not allowed to assist or receive assistance of any kind from any individual or resource
(other than allowed open-book resources, when applicable) for the duration of the assessment.
8. This paper is subject to the approved NWU open-book policy and the following are highlighted:
• You are allowed to highlight, underline, side-line and flag permitted texts.
• You may NOT make any notes anywhere in the prescribed texts.
• You MAY NOT supplement texts with ANY loose papers (whether or not affixed to the permitted texts).
9. Clearly show all calculations.
10. Assume that all amounts are material except where the contrary is stated.
11. Your answer must adhere to the provisions of International Standards on Auditing (ISA).
12. Smart watches / smartphone watches are not allowed.

GEAR371 Class Test 1 – 2023

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QUESTION 1 (45 MARKS)

BACKGROUND INFORMATION

Nesprezzo (Pty) Ltd (“Nesprezzo”) is a network of coffee retailers with branches throughout South-
Africa. The company specialises in providing coffee capsules, coffee beans and coffee making
equipment and accessories to walk-in customers, online-customer, hotels, restaurants, and cafes.
Nesprezzo has a 31 December 2022 financial year end. You are Mr Clued CA (SA) RA, an audit partner
at a medium-sized audit firm, namely BDV Auditors Inc. (“BDV”).

Nesprezzo was founded by four coffee lovers (Mr Espresso, Mr Java, Mr Aroma, and Mr Delight) in
2002 with a standard memorandum of incorporation. It started with a simple idea to create the perfect
cup of coffee and has since revolutionised the way people enjoy their coffee as part of a new coffee
culture. These four gentlemen have been the executive directors of Nesprezzo since its incorporation
and are still the only executive directors up to date. Each of them hold 10% of the share capital in
Nesprezzo since they provided the company’s start-up capital. Mr Egbert a well-known barista, who
offered immeasurable advice to Nesprezzo owns 5%. Mr Egbert preferred not to be involved with the
management activities of the company above his barista responsibilities. The rest of the shares are
owned by the Coffee-Children’s Trust, where the beneficiaries of the trust comprises of the 6 children
of the executive directors of Nesprezzo. Nesprezzo has two independent non-executive directors who
serve on the board, namely Mrs Impress and Mrs Mocca. Mrs Mocca was appointed during the 2022
financial year. Mrs Mocca specialises in online marketing of coffee related products and her insights
are believed to be very helpful in increasing revenue in this type of industry.

Up to date, Nesprezzo’s Annual Financial Statements have not been independently reviewed or
audited, as they are happy with the services provided by Absolute Accountants Inc. (“Absolute
Accountants”) who prepares their financial statements. However, the company has grown so much
during the past few years that Mr Espresso, who is currently the Chief Executive Officer (CEO), decided
to contact you for some advice. During your telephonic discussion you requested Mr Espresso to send
you an extract of the financial results of Nesprezzo and any other relevant information. You will then
arrange for a proper meeting with Mr Espresso to discuss the way forward.

The following documents were made available to you:

Type of document Description

E-mail from Mr Espresso to Mr Clued Basic information and Extracts from Nesprezzo’s
financial statements
Attachment 1 to email: Extract of the minutes of Various matters discussed at the last Board of
the board of directors meeting Director’s Meeting held on 30 November 2022

GEAR371 Class Test 1 – 2023

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EMAIL FROM MR ESPRESSO TO MR CLUED:
To: Clued@BDV.co.za
From: Espresso@Nesprezzo.co.za
Date: 10 January 2023
Subject: Query
Dear Mr Clued

After our telephonic discussion yesterday, I detailed the information you required:

During the last two years, our employee base has increased. Employees include shop assistants
(which consists mostly of qualified baristas), cleaners, coffee ladies and online advisers (assisting
in taking online orders or queries). At the end of 2020 financial year, there were 50 employees, with
65 employees at the end of the 2021 financial year. We recorded 80 employees on 31 December
2022. Employees exclude executive and non-executive directors.

Our accountants, Absolute Accountants, are still busy compiling our detailed accounting records for
the 2022 financial year, but based on our discussion, I think the following line items should be
sufficient for your purposes.

Extracts from financial statements (obtained from year-end trial balance)

2022 2021
Draft (R) Actual results (R)
Turnover from sale on coffee related products 12 300 000 9 500 000
Turnover from sale on coffee equipment and accessories 850 000 350 000
Interest earned on investments 210 000 140 000
Taxation payable 214 000 285 000
Loan to Mr Espresso (Note 1) 50 000 0
Loan from Mr Egbert 10 000 12 000
Loan from Mr Java 85 000 100 000
Water and electricity payable 37 000 54 000
Inventory on hand 121 000 92 000
Share capital (98 000 shares @ R1) (Note 2) 98 000 98 000

Note 1:
You will notice this loan when you go through the accounts. The loan was issued to me during
September 2022. Don’t worry, I did check with the accountants that Nesprezzo had enough cash
on hand to fund this before I approved it. It is much smarter to borrow money from your own
company, interest-free than from a bank. I also checked the net asset value of Nesprezzo, which
was R10 million at the time of the resolution, so it is fine.

I took out this loan to borrow it to Roastery Café (Pty) Ltd (“R-Café”) as they are experiencing
financial difficulty. As you know R-Café supplies the best Affro-coffee beans. Mr Java was upset the
other day when he found out that 80% of R-Café is owned by my daughter-in-law and I own the rest.
I did not bother to tell this finer detail to any of the other directors that were present at the directors
meeting where we discussed the preferred suppliers, as R-Café delivers quality beans at good
prices and their beans have become one of our famous brands to sell. The reason I borrowed money
has nothing to do with them anyway. I will be paying the loan back as soon as Café-R is in a better
financial position.

Note 2:
Nesprezzo has 100 000 authorized shares available. Please also refer to attachment 1 for more
details of resolutions that were passed at the directors meeting held on 30 November 2022.

Kind regards

GEAR371 Class Test 1 – 2023

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 Mr Espresso (CEO of Nesprezzo)

ATTACHMENT 1 TO EMAIL:
EXTRACT OF THE MINUTES OF THE BOARD OF DIRECTORS MEETING

NESPREZZO (PTY) LIMITED

Extracts of the minutes of the Board of Directors meeting held on
30 November 2022
A. WELCOME & ATTENDANCE
All directors were present, except for Mr Delight who was just telephonically informed that he
may not attend any directors meeting or shareholders meeting based on his improper conduct
that was discovered. Mr Delight did not receive any further notice of any kind that relate to this
matter.
[B. APPROVAL OF THE MINUTES OF THE PREVIOUS BOARD MEETING]

C. MATTERS FOR DISCUSSION

Matter 1: Issuing of shares

Mr Aroma suggested that additional shares be issued to his son-in-law, Mr Houseblend, who
just obtained his degree in Master of Business Administration. Mr Aroma suggested that post-
graduate qualifications obtained by the children of the executive directors, or their spouses,
should be rewarded and that obtaining additional shares in the company can be some good
motivation to the other director’s children. Mr Aroma suggested that 5000 shares be awarded
to Mr Houseblend, in his personal capacity and not as part of the Coffee-Children’s Trust,
which was approved by all the directors present. Mr Espresso subsequently added (without
the other directors knowing) to the minutes of meeting that shares will be issued at R0.50 per
share. (Resolution: 30/11/2022-nr1)

Matter 2: Loan to Mr Espresso

Refer to detail of loan in note1: email from Mr Espresso to Mr Clued. (Resolution: 30/11/2022-
nr2)

Matter 3: Suppliers contract awarded to R-Café

R-Café was selected as the preferred supplier of Affro coffee beans to Nesprezzo. Their
decision was based on a report that Mr Espresso presented indicating the good quality of
R-Café’s Affro coffee beans. In addition to this, R-Café quoted an exceptionally good price to
deliver the beans to Nesprezzo. Mr Espresso was happy to also vote in favour of R-Café, like
the other directors present. Refer to more detail relating to R-Café in note1: email from Mr
Espresso to Mr Clued. (Resolution: 30/11/2022-nr3)

Matter 4: Removal of Mr Delight

Mr Espresso informed everyone at the meeting that it was the right decision to not invite
Mr Delight to the meeting, as an informed source informed Mr Espresso that Mr Delight has
secretly been selling the newly developed coffee bean recipe to our competition, Nestles Ltd.
Mr Espresso suggested that Mr Delight be removed as director and all directors present
agreed. (Resolution: 30/11/2022-nr4)

Matter 5: Amendment of Nesprezzo’s Memorandum of Incorporation

The board of directors has decided that the Annual Financial Statements of Nesprezzo should
be audited from the 2023 financial year, due to Nesprezzo having grown so much over the
years. The board of directors has therefore proposed, in terms of an ordinary resolution, that
Nesprezzo’s Memorandum of Incorporation be amended to make provision for the auditing of

GEAR371 Class Test 1 – 2023

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 the Annual Financial Statements. The ordinary resolution was adopted at this meeting.
(Resolution: 30/11/2022-nr5)

D. ADDITIONAL INFORMATION
Mr Espresso reminded the board that a special resolution was passed by the shareholders
during 2021 to approve any loans or financial assistance to directors.

SUB-
QUESTION 1 – REQUIRED TOTAL TOTAL
1.1 With specific reference to the “BACKGROUND INFORMATION” and
“EMAIL FROM MR ESPRESSO TO MR CLUED”: 15 x 1
In respect of the 2022 financial year, discuss in detail, together with
reasons, whether Nesprezzo (Pty) Ltd should be audited or
independently reviewed. Please show all calculations where relevant.

Note: Theory will be awarded 0.5 marks each and application 1 mark
each.
1 x1 16
Communication mark: Layout and structure

1.2 With specific reference to the “BACKGROUND INFORMATION”,

“EMAIL FROM MR ESPRESSO TO MR CLUED”, and “ATTACHMENT
1 TO EMAIL”:

Identify and discuss any non-compliance with the Companies Act 71 of

2008.

Note: Exclude section 76 and section 77 of the Companies Act 71 of

2008 from your discussion.

Your answer should be presented per matter 1 to matter 5 in the

following table format:
Matter Theory Application
(0.5 marks each) (1 mark each) 28
Matter 1 Max 2 marks Max 4 marks
Matter 2 Max 2 marks Max 4 marks
Matter 3 Max 2 marks Max 7 marks
Matter 4 Max 1.5 marks Max 2 marks
Matter 5 Max 1.5 marks Max 2 marks

Communication mark: Presentation 1 x1 29

TOTAL MARKS FOR QUESTION 1 45 45

TOTAL MARKS: 45

** End of paper **

GEAR371 Class Test 1 – 2023

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