HLAA130-1 Formative Assessment 1 PDF

ANNEXURE F: FORMATIVE ASSESSMENT 1 HIGHER EDUCATION PROGRAMMES Academic Year 2024: July - December Formative Assessment 1: Legal Aspects of Accounting (HLAA130-1) N...

ANNEXURE F: FORMATIVE ASSESSMENT 1 HIGHER EDUCATION PROGRAMMES Academic Year 2024: July - December Formative Assessment 1: Legal Aspects of Accounting (HLAA130-1) NQF Level, Credits: 5, 12 Weighting: 15% Assessment Type: Open Book Examiner: J. Verwey Educator: P. Mapila Due Date: 13 September 2024 Total: 100 marks Instructions: This paper consists of 3 questions. It is based upon units 1- 4 of your study guide. All questions are compulsory. When answering a question, always state the section/regulation in the Act, then apply the specific section/regulation identified in the Act to the question/information/scenario. Copyleaks is not applicable. The SAICA Competency Framework Reference at the end of a question is for recordkeeping and will inform you which SAICA Competency is covered in the question. 1 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024 ANNEXURE F: FORMATIVE ASSESSMENT 1 QUESTION 1 (50 marks) Happy Solar (Pty) Ltd. (“Happy Solar”), a solar energy solutions provider, was established in March 2010, coinciding with the onset of load shedding in South Africa. Happy Solar offers a wide range of services, including the installation of solar panels, inverters and batteries as well as electrical callouts and inspections. Happy Solar’s financial statements are prepared by Jack Black, a newly qualified CA(SA) who runs his own independent accounting firm, trading under the name Jack Black Incorporated. The financial year end of Happy Solar is 29 February 2024. Happy Solar experienced a remarkably profitable financial year, driven by increased demand for solar energy solutions. An extract of Happy Solar’s financial statements showed the following: Shareholders of Happy Solar 91 Employees on 1 March 2023 270 Employees on 29 February 2024 255 Long-term liabilities R 83 456 123 Short-term liabilities R 301 250 Turnover for the financial year R 166 456 345 The following information relates to Jack Black’s occupation: Jack Black successfully passed his professional examination in November 2022, thereby qualifying him to register as a CA(SA). Although he met the qualification criteria in November 2022, he opted to delay his registration with the South African Institute of Chartered Accountants (SAICA) until January 2024. Jack Black does not hold membership or registration with any other professional body, nor does he have any financial or personal interests in Happy Solar, including no employment or familial relationships with any employees of the company. 2 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: 1.1 With reference to the Companies Act 2008 and Regulation 26, define the ‘Public Interest Score’. (4 marks) 1.2 Calculate the Public Interest Score for Happy Solar (Pty) Ltd. Show all your calculations clearly. (10 marks) 1.3 Discuss whether the financial statements of Happy Solar are internally or independently compiled and state your reasons. (17 marks) 1.4 If the Public Interest Score for Happy Solar (Pty) Ltd. is 240, and the financial statements are independently compiled, advise if the financial statements must be audited or independently reviewed. Motivate your answer with reference to the requirements of Regulations 28 and 29. (19 marks) Competency Framework Reference F.1 CONCEPTS AND PRINCIPLES OF ASSURANCE ENGAGEMENTS F1.1 Concept of assurance Advise on an organisation’s need for assurance engagements (public a) interest; distinction between statutory and voluntary audits) F1.2 Expectation gap Explain the role of professional auditors in assurance engagements from b) a public interest perspective 3 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024 ANNEXURE F: FORMATIVE ASSESSMENT 1 QUESTION 2 (10 marks) John Wick, Director of an accounting firm, Wick Incorporated, asserts that he will not be held personally liable for any fraudulent or reckless actions committed in his capacity as a director. He believes that his actions as a director are solely on behalf of the company and do not attract personal responsibility. REQUIRED: Advise John Wick whether he may be held personally liable or whether the company, Wick Incorporated, may be held liable for fraudulent actions committed in his capacity as a director. Support your answer with references to the Companies Act. (10 marks) A1 GOVERNANCE MODEL A1.2 The entity’s governance structures and practices Evaluate governance structures and practices of the organisation in terms a) of King IV (and successors) and relevant laws (e.g., Companies Act, 2008,) and regulations 4 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024 ANNEXURE F: FORMATIVE ASSESSMENT 1 QUESTION 3 (40 marks) You are a member of the audit team, which is auditing the client Diagon Alley Properties Ltd (“Diagon Alley”), a large company listed on the Johannesburg Stock Exchange (“JSE”). Diagon Alley owns a large number of shopping centers across South Africa. Diagon Alley earns the majority of its income by renting out store space. Further income is derived from charging tenants administrative and management fees for the cleaning and management of the shopping malls, as well as parking income generated by customers, who must pay for secure parking at the mall. During the financial year ended 30 November 2024, the board of Diagon Alley approved interest free, unsecured loans totaling R 7.3 million to two of its Directors, namely Mr. Malfoy and Ms. Greengrass. In addition, the board also granted unsecured loans at prime less 3% to Mrs. Goyle and Mr. Crabbe, to the value of R 2.7 million, in order to buy shares in High Street (Pty) Ltd, a subsidiary company of Diagon Alley. There is no evidence of authorisation being obtained for these loans, nor any indication that a solvency and liquidity test was conducted before these loans were granted. You procured a copy of Diagon Alley’s Memorandum of Incorporation (MOI) from the company’s registered office. The MOI explicitly states that the provision of financial assistance for the purchase of shares in any company other than Diagon Alley itself is strictly prohibited. The MOI does not include any other clauses that override or change the requirements of the Companies Act. Diagon Alley hosted its AGM on 15 January 2025. Notice for the AGM was sent to shareholders via email on 7 January 2025. Several shareholders responded to the AGM announcement, expressing concern that the notice was given too late and that they would be unable to attend the AGM in person. Some of these shareholders questioned whether it would be possible to attend the AGM virtually, while others requested whether they could appoint a proxy to vote on their behalf at the AGM. The Company Secretary, Ms. Parkinson, responded to these queries, stating that as the Company Secretary, she was allowed to decide whether the notice given to shareholders for the AGM was reasonable, and she believed that one week was sufficient notice. Ms. Parkinson further advised the shareholders that if they were 5 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024 ANNEXURE F: FORMATIVE ASSESSMENT 1 unable to attend the AGM in person, they would not be allowed to join the meeting virtually and would forfeit their right to vote in any manner. Upon enquiry, Ms. Parkinson told you that proxies and virtual meetings are a waste of time, as a result of her being the company secretary for 15 other companies. You requested the minutes of the shareholders’ and Directors’ meetings from Mr. Riddle, the chairman of the Board of Directors of Diagon Alley. Mr. Riddle indicated that they do not always take minutes at Directors’ meetings, as people have better things to do than read the boring minutes of meetings. REQUIRED: 3.1 Discuss the legality of the loans granted by Diagon Alley, as well as the possible consequences for the company and the Directors who authorised the loans to Mr. Malfoy and Ms. Greengrass in terms of the requirements of the Companies Act. (12 marks) 3.2 Discuss the legality of the loans granted by Diagon Alley to Mrs. Goyle and Mr. Crabbe in terms of the requirements of the Companies Act. Ignore the consequences for the company and its directors who authorised the loans. (10 marks) 3.3. Discuss the rights of the shareholders of Diagon Alley in terms of the Companies Act, as related to the AGM. Ensure that you cover the following in your response: A shareholder’s right to appoint a proxy (3marks) Conduct of shareholders’ meetings (4 marks) The notice of a shareholders’ meeting (11 marks) (18 marks) 6 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024 ANNEXURE F: FORMATIVE ASSESSMENT 1 A1 GOVERNANCE MODEL A1.2 The entity’s governance structures and practices Evaluate governance structures and practices of the organisation in terms a) of King IV (and successors) and relevant laws (e.g., Companies Act, 2008,) and regulations 7 HLAA130-1-Jul-Dec2024-FA1-AA-V3-19072024