AIC22A2

Companies Act – Unit 3

Week 3 lecture question (From Tuesday 2 April)

Lecture Question
Siyaphanda (Pty) Ltd is a private company that manufactures different types of furniture for
example: couches, coffee tables, headboards, dining room tables etc. They import their raw
materials from suppliers in South Africa to manufacture their furniture. Most of the products
the company manufactures are exported to customers in China. The company has a financial
year end of 31 March.

Siyaphanda (Pty) Ltd currently has 7 board of

directors: Mrs Hustler is the Chairperson
• Mrs Cory is the Chief Executive Officer (CEO)
• Mr Corona CA(SA) is the Chief Financial Officer (CFO)
Mr Covisto is the Chief Operations Officer (COO) The
following are non-executive directors:
o Mrs Influenza is a qualified
Attorney o Mr Immune-
System CA(SA) and o Mrs
Sanitizer is a qualified
Engineer

Siyaphanda (Pty) Ltd generated revenue of R200 million and a public interest score of 285 in
the 2017 financial year. The financial statements were compiled by an accounting firm Keep
Moving (Pty) Ltd.
Siyaphanda’s revenue doubled in the following financial year, 2018. As a result of the business
growing rapidly, the company needed additional funds. So the shareholders together with the
directors of the business decided to list the company on the Johannesburg Stock Exchange (JSE)
in the 2019 financial year. This meant that the company’s name changed from Siyaphanda (Pty)
Ltd to Siyaphanda Ltd.

The directors remained unchanged after the listing on the JSE.

The company held an annual general meeting (AGM) after the listing took place, 2019. One of
the items that was on the agenda for discussion was the appointment of an auditor. Below is
information of the auditor who is proposed to be approved and appointed as the new auditor.

IsiBindi is an auditing firm. It was founded by Mr IsiBindi who is the self-appointed and only
audit partner in the audit firm. Mr IsiBindi is a qualified Chartered Accountant. He is only
registered with the South African Institute of Chartered Accountants (SAICA).

The audit firm was founded 4 years ago after Mr IsiBindi completed his training articles. The
audit firm currently has a total of 4 employees, including Mr IsiBindi, to perform the audit.
AIC22A2
Companies Act – Unit 3
Week 3 lecture question (From Tuesday 2 April)

IsiBindi quoted R2 million in order to complete the entire audit. This was based on guidance
given to Mr IsiBindi by Kefiloe Kemanga. Kefiloe’s father and IsiBindi’s mother are siblings.
Kefiloe used to be Financial Accountant at Siyaphanda where she mostly performed monthly
reporting for the entity. Kefiloe resigned from this role in the 2016 financial year.

An auditor was appointed for the first time for this entity at the AGM.

REQUIRED:
Identify and discuss all possible contraventions of the Companies Act in the scenario above.
You are required to justify your response. (10)
AIC22A2
Companies Act – Unit 3
Week 3 lecture question (From Tuesday 2 April)

SOLUTIONS

Section 90
 The directors of the entity are in violation of the Section 90 (Appointment of
Auditors) for the following reasons:
o An auditor was appointed for the first time in the 2019 financial year and not in the
2018 financial year 
o Section 90 states that a private company needs to appoint an auditor at an AGM for
the first year that the entity has a public interest score of 350 or more. 
- The information mentions that revenue doubled in the 2018 financial year from
the previous financial year.  This means that it went from R200 million to R400
million. 
- No additional information is required about 3rd party liabilities and
shareholder’s information to determine the type of assurance required. 
- Reasonable assurance  needs to be performed on the entity in the 2018 financial
year.
- In terms of the requirements of the public interest score, an entity needs to have a
reasonable assurance engagement performed on it if it has a public interest
score is greater than 350 
o There is no mention that the audit committee satisfied itself about
the independence of the auditor 
o The appointed auditor should not have been appointed  for the
following reasons:
 The Companies Act requires an auditor to be a registered
auditor with IRBA.
- Mr IsiBindi is not a registered auditor with IRBA.
- The scenario mentioned that he is a qualified Chartered Accountant and is only
registered with the South African Institute of Chartered Accountants (SAICA). 
- Mr IsiBindi is cousins (a related party) with Kefiloe Kemanga.  Kefiloe used to
be the Financial Accountant at Siyaphanda where she mostly performed monthly
reporting for the entity. Kefiloe resigned from this role in the 2016 financial
year.
- Section 90 prohibits the appointment of auditors who is a related party of a
person who habitually & regularly performed finance work  for the company in
the past 5 years 
- The fact that Kefiloe, an individual who performed the monthly reporting for
Siyaphanda, is a cousin to Mr IsiBindi and also resigned in 2016 (which is within
the 5 year period) means IsiBindi does not qualify to be appointed as an auditor of
Siyaphanda 