You are a professional accountant at XYZ & Co., audit firm. You are one of six audit team members to audit the ABC Limited. In preparation for the audit of ABC Limited, your audit senior presented you with the following information on the ABC Limited: ABC LIMITED BUSINESS BACKGROUND ABC Limited was established in 1976 in South Africa. Its core business is the mining and smelting of chrome ore. Chrome ore is converted to ferrochrome through intense metallurgical processing. ABC Limited is one of the largest integrated ferrochrome producers in the world with an annual capacity of one million tons. ABC Limited produces three grades of ferrochrome, namely charge chrome, intermediate chrome and low carbon ferrochrome, each used in different areas of the stainless steel smelting process. ABC Limited’s mining operations are situated in Meyerton. The head office is situated in the central business district of Johannesburg. The ABC Limited employs a workforce of 16,300 employees. In April 2021 XYZ & CO. was awarded a tender to audit ABC Limited and its newly acquired subsidiary company, SamCoal (Pty) Ltd (SamCoal) for the year ended 31 August 2021. The appointment of XYZ & CO. will be evaluated annually at ABC Limited’s annual general meeting as stated in the revised memorandum of incorporation of the company. The appointment of XYZ & CO. as the auditors of ABC Limited came about as a result of the previous auditors filing a notice of resignation. They resigned because they considered themselves as not having adequate resources to service ABC Limited due to the company’s growth. When the previous auditors were contacted by XYZ & CO., they confirmed that they had enjoyed the long association with ABC Limited and also stated that ABC Limited has a good reputation in the industry. ABC Limited acquired a 55% shareholding in SamCoal on 11 September 2020. At the time, the year-end for SamCoal was 31 March. To ensure consistency in group reporting, the financial year-end of SamCoal was changed to 31 August. The core business of SamCoal is the mining of coal. SamCoal has three coal mining sites in various areas of the Mpumalanga province and a newly established mining site in the Limpopo province. Each coal mining site has accounting staff responsible for capturing financial data. The head office of SamCoal is situated in Middelburg. During mid-March 2021, Mr. P, the audit partner on the audit, was approached by Sipho Platinum Mines Ltd, an 80% shareholder of ABC Limited, to negotiate the sale of their shares in ABC Limited. The sale was completed successfully in May 2021. This resulted in the delisting of ABC Limited from the Stock Exchanges. The new shareholding of ABC Limited is as follows: Shareholders of ABC Ltd. Shareholding % Steel South Africa (Pty) Ltd 80 Directors and staff 15 Others 5 In May 2021, the ABC Limited Group was affected by the South African Transport Union’s strike that lasted for a month. Employees of ABC Limited Group also went on a strike in July 2021 over salary increases. This strike lasted for two weeks. The ABC Limited Group was not able to export ferrochrome and coal to overseas customers during this period. These customers represent 80% of the group’s customer base. As a result, the group recorded a loss for the 2021 financial year, for the first time in years. On 30 June 2021 the service contract of both the chief executive officer (CEO) and the managing director (MD) of ABC Limited Group came to an end. The majority shareholders decided at a general meeting not to renew their contracts. Both the CEO and MD had been employed by ABC Limited for more than 10 years. It has been reported in the business press that they are the main people who can be credited for the financial success of ABC Limited over the years. The search is on for two candidates with the required skills, knowledge and experience to fill the vacant positions. In the meantime, the financial director is acting as both the CEO and MD. To ensure that the ABC Limited Group is well managed, a significant part of the remuneration of directors is incentive-based. The director’s remuneration is determined by the audit committee. A week before the ABC Limited Group’s financial year-end, the audit partner became aware of the following article in the financial press: SAMCOAL MINES ON CULTURAL HERITAGE SITE The Department of Water Affairs and Forestry has raised concerns about the illegal mining opera-tions performed by SamCoal on the cultural heritage site in the Limpopo province, near the Zimbabwean border. The site is home to more than 470 bird species, as well as more than 50 different species of endangered plant life. According to the Department, SamCoal has already destroyed five square kilometres of the indige-nous forest in order for them to perform their mining activities. A spokesperson for the Department of Minerals and Energy stated that SamCoal owns the mining rights to a portion of land situated close to the site. The Department of Water Affairs and Forestry has filed a lawsuit against SamCoal for the damage they have caused to the cultural heritage site. On 5 September 2021, the attorneys of the ABC Limited Group indicated that the court is likely to rule in favour of the Department of Water Affairs and Forestry. The estimated cost set to restore the site amounts to approximately USD 100,000,000. The acting CEO has informed XYZ & Co. that the new holding company requires the audited financial statements of the ABC Limited Group within two weeks after the year-end. The shareholders require this information as soon as possible to determine if the group might need to be steered in a different direction. Required Discuss the matters to consider, and concerns XYZ & Co. would have, prior to accepting the ABC Limited Group as an audit client.

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