SECTION A [100 MARKS] Read the scenario below and answer the questions that follow. You are the senior partner in a small-to-medium sized audit rm. Your audit rm has recently been appointed as the auditors of Blueberry SA Limited \"Grey Pty (Ltd]\"_. a recently listed company on the .JSE Securities Exchange The year-end of Grey Pty (Lle is 01 January 2022. Grey Pty [Ltd] specialises in manufacturing and marketing mobile communication. media devices as well as personal computers. The company caters for both South African and overseas customers. Grey Pty {Ltd} accepts foreign currency from overseas customers, and although it is not widely publicised. prefers to receive cash from local customers. rather than credit card payments or electronic transfers. The head ofce of the company is situated in Durban. and it has branches situated in Port Elizabeth. East London and Cape Town. Grey Pty {Ltd} is doing extremely well. and has recently shown a steady increase in turnover. The growth from previous years is mainly due to the fact that the company has implemented a new bonus system for the management staff of the company. The bonus system states that if turnover exceeds the budgeted turnover by more than 25%. a percentage of the excess turnover will be paid out to management. Management is extremely excited about this incentive. Due to the recent signicant growth in the company, the previous manual accounting system became inadequate for the company, and it was decided during the year ended 01 January 2022, to change over to a computerised system. The computerised accounting package is an \"off the shelf package". None of the staff were familiar with the package. so it was decided to employ an IT manager to oversee the processing of the accounting records. as well as monitoring the accuracy of the system. The newly appointed IT managers previous job, was as a marketing agent who advertised technology products for various companies. Grey Pty {Ltd} suffered a substantial loss in the previous year as a result of a legal claim against the company. Big Bang Limited Ltd sued Grey Pty (Ltd) for patent infringement. They claim that Grey Pty (Ltd) had relied on its patents related to software, video coding. chipsets, display and antenna for many years. Grey Pty {Ltd} was eventually taken to court where they lost the lawsuit and were forced to pay damages. The payment of damages also resulted in Grey Pty (Ltd) facing a severe liquidity crisis. Upon discussions with management, you discovered that the previous auditor resigned as a result of a disagreement with management. Management of Grey Pty (Ltd) refused to give your rm permission to contact the previous auditor. Question 1 (30 Marks) You are required to describe the factors that you as the auditor should consider and the procedures you should perform prior to acceptance as auditor of Grey Pty (Lid) Lid, these will be the pre-engagement activities that need to be conducted. (N.B - your answer should be in relation to the case study that is provided and not generic steps that are involved in the pre-engagement activities). Question 2 (20 Marks) Based on the scenario presented in question 1 you are required to decide whether the risk of material misstatement at the financial statement level should be assessed as low, medium or high. Give reasons for your decision by providing the factors that will contribute to you risk level. NB: This should be in relation to the case study.Question 3 (20 Marks) Registered auditors have skills and knowledge to perform their functions and they should be completely honest in performing their functions. The following actions taken by registered auditors are examples of non-compliance with one or more of the fundamental principles. Reguired: Identity with explanations which of the fundamental principles belonging to the SAICA Code of Professional Conduct have not been complied with in each of the situations described below: a) Tommy Tim the registered auditor in charge of the Perry Sauce (Pty) Ltd audit, made racist comments concerning the clients staff during an audit planning session. (3 Marks) b) Jerry)r Jan the registered auditor in charge of the audit of Dribble Drabble (Pty) Ltd, charged the client a fee for audit procedures which he knew had not actually been carried out. (3 Marks) c) Toliy Ted a registered auditor, arranged with some of his clients to pay the fees which he charged for his services in cash. Any client agreeing to do so was not charged VAT and was given a substantial discount. (5 Marks) d) The nancial director of Dentists Ltd has made an offer to the audit team to take them on a weekend trip to a safari with all expenses paid for, which will become an event that occurs on a yearly basis should all audit deadlines be met annually. (6 Marks] e) A fellow partner of yours, at the audit company you work for, is due to shortly marry the nancial director of one of the company audit clients. She is also part of the audit team which conducts the audits for this client. (3 Marks] Question 4 (10 Marks) Protection of information resources requires a welloesigned set of controls. Computer systems are controlled by a combination of general controls and application controls. General controls govem the design, security. and use of computer programs and the security of data les in general throughout the organization's information technology infrastructure. On the whole, general controls apply to all computerized applications and consist of a combination of hardware, software, and manual procedures that create an overall control environment. Application controls are specic controls unique to each computerized application, such as payroll or order processing. They consist of controls applied from the business functional area of a particular system and from programmed procedures. You are required to indicate the following: 4.1 General controls that can be found in an information technology environment. (5 Marks) 4.2 The categories of general controls (5 Marks} Question 5 {20 Marks] Principle 3 of corporate governance indicates the following: The board should ensure that the company is and is seen to be, a responsible corporate citizen. The introduction to the King IV Report states that being a \"corporate citizen is about a company's status in the broader society ....... and a corporate citizen has rights, but also obligations and responsibilities". A detailed explanation of this principle is inclusive of the following factors: a The success of a company should not only be judged in terms of the nancial performance of the company. but also in terms of the impact of the company on the economy, society and the environment, is the triple context 0 The company should protect, enhance and invest in the wellbeing of the economy. society and the environment, is. the triple context, 0 Being a responsible citizen for a company, means the establishment ofan ethical relationship of responsibility between the company and the society in which it operates. Companies have rights, but they also have legal and moral obligations in respect oftheir social and natural environments. 0 Being a responsible corporate citizen and sustainable development are inseparable; a company which is an irresponsible corporate citizen, for example, one which does not treat its employees fairly, engages in illegallcorrupt practices and has no regard for the environment is sooner or later going to tail. 0 Being a responsible corporate citizen is far more than projecting an image and getting public relations right. It is about genuine commitment and leadership in the company, not a series of publicity stunts or a passing phase. With reference to the factors that are taken into account ih Principle 3 of corporate governance, you are required to provide TEN (10) examples of factors which a company should consider in relation to being a responsible corporate citizen and TEN (10} examples of how a company might act in relation to those factors. NB: You should set your answer out as follows: (Table can be found in the online answer booklet) Factor to be considered: A good corporate citizen would: a) b) l c} d)