Question 2 Read the scenario below and answer the question that follows: You are a member...

 

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Question 2 Read the scenario below and answer the question that follows: You are a member of the team responsible for the annual audit of MISA (Pty) Ltd, a large company which retails men's clothing. The company has outlets throughout Southern Africa which sell both imported and locally manufactured goods. Whilst conducting routine audit tests on payments, you notice that at reasonably regular intervals, ATM cash withdrawals for amounts ranging from R5 000 to R10 000 are paid to a supplier, simply referred to as CASH. You also notice that these payments coincide with consignments imported from China, but for which there are no documents reflecting entry into South Africa. Puzzled, you approach Walter Melon, who is a chartered accountant and the financial manager of MISA (Pty) Ltd. His response was as follows: "Don't worry about it - it's a pretty normal business practice in the clothing industry. We land the goods in Zimbabwe, change the 'Made in China' labels in the garments to 'Made in South Africa' labels, repackage them, and bring them in through the border post in one of our delivery trucks. Our distribution manager gives the cash to the driver in case any customs officials don't want to accept that the goods are being returned to our local depot from our Zimbabwean outlets. The cash certainly helps them to see it our way! I raised this issue a year or two ago with the financial director and he nearly exploded! He told me to just ignore it and get on with my job. So, I did - he is not the right person to get on the wrong side of!" Discuss whether Walter Melon's response constitutes a reportable irregularity. End of Section A (20 Marks) Question 2 Read the scenario below and answer the question that follows: You are a member of the team responsible for the annual audit of MISA (Pty) Ltd, a large company which retails men's clothing. The company has outlets throughout Southern Africa which sell both imported and locally manufactured goods. Whilst conducting routine audit tests on payments, you notice that at reasonably regular intervals, ATM cash withdrawals for amounts ranging from R5 000 to R10 000 are paid to a supplier, simply referred to as CASH. You also notice that these payments coincide with consignments imported from China, but for which there are no documents reflecting entry into South Africa. Puzzled, you approach Walter Melon, who is a chartered accountant and the financial manager of MISA (Pty) Ltd. His response was as follows: "Don't worry about it - it's a pretty normal business practice in the clothing industry. We land the goods in Zimbabwe, change the 'Made in China' labels in the garments to 'Made in South Africa' labels, repackage them, and bring them in through the border post in one of our delivery trucks. Our distribution manager gives the cash to the driver in case any customs officials don't want to accept that the goods are being returned to our local depot from our Zimbabwean outlets. The cash certainly helps them to see it our way! I raised this issue a year or two ago with the financial director and he nearly exploded! He told me to just ignore it and get on with my job. So, I did - he is not the right person to get on the wrong side of!" Discuss whether Walter Melon's response constitutes a reportable irregularity. End of Section A (20 Marks)

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