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King Code IV - Example 2 (1)

The document outlines the audit assignment for Baldavoo Nutrition Ltd (BNL) by Sasha’s Auditors Inc., detailing the company's background, leadership, and board meeting minutes. It highlights potential non-compliance with corporate governance principles, particularly in the areas of risk management, committee structures, and IT infrastructure. Recommendations for compliance with the King Code IV include establishing a remuneration committee and addressing IT equipment concerns to ensure effective governance.

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9 views

King Code IV - Example 2 (1)

The document outlines the audit assignment for Baldavoo Nutrition Ltd (BNL) by Sasha’s Auditors Inc., detailing the company's background, leadership, and board meeting minutes. It highlights potential non-compliance with corporate governance principles, particularly in the areas of risk management, committee structures, and IT infrastructure. Recommendations for compliance with the King Code IV include establishing a remuneration committee and addressing IT equipment concerns to ensure effective governance.

Uploaded by

kimeshenpillay2468
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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A.

King Code IV, Report on Corporate Governance for South Africa 2016:
You are an audit trainee at Sasha’s Auditors Inc. (SSAS) a medium-sized audit firm. Early in
2018, you were assigned to the audit of Baldavoo Nutrition Ltd (BNL) a dominant player in
the high-performance nutrition and supplement market in South Africa. The year-end is 31
June 2019. Miss Ayesha Raboteng is the senior audit manager and Miss Phakamile Mhlongo
is the audit engagement partner on BNL. BNL became a client of SSAS for the first time in
January 2019.

In relation to the audit, you receive the following from Miss Ayesha Raboteng:
1. Electronic working paper 1200 – Understanding the entity and its environment.
2. Extracts from the minutes of the board meeting on the 3 January 2019

1. ELECTRONIC WORKING PAPER 1200 - UNDERSTANDING THE ENTITY


AND ITS ENVIRONMENT
Client: Prepared by:
Baldavoo Nutrition Ltd Graham Van Rensburg Date: 21 December 2018

Year ended: Reviewed by:


31 June 2019 Ayesha Raboteng Date: 14 February 2019

1.1. Background information.


BNL is a South African incorporated company, which is listed on the Johannesburg Stock
Exchange. BNL specialises in the manufacture of nutritional supplements, which are sold
to South African customers. BNL is a leader in research and development in its industry;
it generates new products every quarter without fail. It does this by limiting the costly
pharmaceutical tests that other competitors put their new products through. Rather
products are sold which then brings in money for these pharmaceutical tests. The
directors are of the belief that doing business requires risk-taking and untested products
are just other risks. Eventually, the products are tested.
BNL is the only South African nutritional supplement country that has won numerous
international awards for its ground-breaking and innovative products four years in a row.
BNL’s vision is to dominate the international market by 2020.
BNL operates in a highly regulated industry. The directors admit that the nutritional
supplement industry has too many regulations much of these regulations mirror the
pharmaceutical industry. None of the directors have a detailed knowledge of the laws and
regulations of the nutritional supplement industry or the pharmaceutical industry.

1.2. Company leadership.


Members of the board of directors:
 Mr. Marc Williams (chief executive officer and chairperson of the board)
 Mr. Michael Wiseman (company secretary)
 Mr. Peter Wood (chief financial officer)
 Mr. Kendal Franks (human resources consultant)
 Dr. Bradley Hilda (lead non-executive director and deputy chairperson of the board)
 Mr. James Biscuits (independent non-executive)
Audit committee members:
 Mr. Umar Mohammed Karim (chairperson)
 Mr. James Biscuits
Mr. Biscuits was appointed to the audit committee by Mr. Williams after he indicated that he
wanted to go back to university and has registered for a B.Com Accounting at the University
of Kwa-Zulu Natal (UKZN). He has aspirations of becoming a CA (SA). Mr. Williams
thought that by working with Mr. Karim, he would gain valuable financial and technical
experience.
2. EXTRACT FROM THE MINUTES OF THE BOARD MEETING ON THE 3
JANUARY 2019
Dr. Hilda congratulated Mr. Williams who married his youngest daughter on the weekend. He
also conveyed the apologies of Mr. Franks, his stepson. The reason submitted for Mr. Franks’
absence was that he was busy at the board meeting of Eskom. Mr. Franks was recently
appointed to the Eskom board, following his four awarding winning books on renewable
energy in China.
Mr. Wiseman suggested that the company considers appointing a remuneration committee. He
added that he was being paid very little considering that he is both a director and the company
secretary.
Mr. Williams seconded the proposal by Mr. Wiseman. Mr. Williams also volunteered to be
chair of the remuneration committee. Other directors agreed that Mr. Williams could act as the
remuneration committee.
Mr. Wood congratulated Mr. Biscuit on registering for his degree. He indicated that he wants
to register for a PhD at UKZN too. In addition, he stated that his research in to plant life cycles
would continue from his master’s degree in agriculture.
Mr. Wood expressed deep concern about the IT equipment that was being utilised in the
company. He stated that the aggressive research has led to a deterioration of all IT equipment.
He estimates that the company would need to replace all IT equipment in the next two weeks.
Mr. Williams said that IT is a luxury and the company should know how to function without
it. He added that when he created this company there were no computers and he would like it
to stay that way.

Required

Prepare a memorandum to Miss Phakamile Mhlongo in which you describe any non

compliance and potential non-compliance and briefly recommend appropriate action in line

with the King Code IV, Report on Corporate Governance for South Africa 2016. (36 Marks)

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