appreciation'. As a result, urgent funding was required to pay for the spectrum and Mr. Brian Bigshot proposed the board approach S\&H (Pty) Ltd. The board authorized a special resolution on 22 June 2023 to seek finance of R150 000000 (material) from S\&H (Pty) Ltd utilizing a long-term loan and a further payment of R15 000000 representing the 'token of appreciation'.: The details of the loan agreement were as follows: During the performance of audit procedures, you became aware that S\&H (Pty) Ltd is owned by Mr David Bigshot. The surname similarity startled you, and additional investigation revealed that Mr Brian and David Bigshot are biological brothers. Email from Mr Brian Bigshot to the board of directors on the 05 June 2023: I propose we attend and bid at the auction for broadband spectrum taking place on the 21 June 2023. I am aware that Cloud's strategic vision is to extend the customer reach to more suburbs and rural areas and to be the preferred 5G data and voice provider in the South African market. Please note the details regarding the auctioning of spectrum in the auction communication below. P.S. I am good friends with the auctioneer and with a small token of appreciation of R15 000000 , we can obtain a favourable outcome during the bidding process. Therefore, I believe the token of appreciation will be used to improve our customer base. This amount should be recorded as marketing expenses. Regards Mr Brian Bigshot CA(SA) Attachment: Extract from auction notice.pdf 3.2 Details regarding Long-term obtained from S\&H (Pty) Ltd to fund the purchase of spectrum. You can assume that buying on auction is commonplace in the telecommunications industry and that the outcome of the auction was in favour of Clouds after the paying the token of REQUIRED Marks 1. With reference to the Background information and Board of directors (governing body): Critically discuss your concerns regarding the composition of the board of Clouds (Pty) Ltd for the financial year ending 30 June 2023 in line with the requirements of King IV on corporate governance. You are not required to provide any recommendations. (6) 2. With reference to the Background information: Formulate substantive audit procedures to address the occurrence of revenue earned on the rental of modems. (6) 3. With reference to the Background information and Long-term loan from S\&H (Pty) Ltd to purchase spectrum on auction from Multiplex: 3.1. Discuss your concerns surrounding the long-term loan obtained from S&H (Pty) Ltd based on section 75 of the Companies Act. (12) 3.2. Assuming your team considered the above matter to be a significant deficiency in internal control, draft an audit finding in relation to the loan obtained from S\&H (Pty) Ltd. You may also include recommendations to remedy the deficiency. (6) Communication mark: layout in the form of a report (1) 3.3. Describe additional substantive audit procedures to be performed on the long-term loan received from S\&H (Pty) Ltd. (15) You can assume procedures to audit related party transactions and disclosures in the financial statements were already performed and the loan from S\&H was not disclosed as a related party transaction. 4. With reference to the Background information and Board of directors (governing body) and Long-term loan from S\&H (Pty) Ltd to purchase spectrum on auction from Multiplex: Discuss the ethical implications of Mr Brian Bigshot CA(SA)s actions for securing the spectrum on auction and proposition related to the funding obtained from S\& H (Pty) Ltd to pay for the spectrum. (13) Limit your answer to the SAICA Code of conduct and related statutory duties. Communication mark: logical argument (1) Additional information: Note 1: Mr. Brian Bigshot was appointed on the 01 April 2023 as a non-executive director. 2. Companies Act No. 71 of 2008 Clouds strives to comply with all applicable laws and regulations. The Companies Act No. 71 of 2001 and accompanying Regulations are mandatory laws and regulations that South African businesses must follow. In accordance with ISA 250 Consideration of laws and regulations in an audit of financial statements, you must report on any instances of noncompliance with laws and regulations as an auditor. Your audit senior has copied the Companies Act excerpt below into the audit working file. Section 75: Director's personal financial interests. 5. If a director of a company, other than a company contemplated in subsection (2)(b) or (3), has a personal financial interest in respect of a matter to be considered at a meeting of the board, or knows that a related person has a personal financial interest in the matter, the director- a) must disclose the interest and its general nature before the matter is considered at the meeting: (b) must disclose to the meeting any material information relating to the matter, and known to the director. b) may disclose any observations or pertinent insights relating to the matter if requested to do so by the other directors: c) if present at the meeting, must leave the meeting immediately after making any disclosure contemplated in paragraph (b) or (c); d) must not take part in the consideration of the matter, except to the extent contemplated in paragraphs (b) and (c); e) while absent from the meeting in terms of this subsection- (i) is to be regarded as being present at the meeting for the purpose of determining whether sufficient directors are present to constitute the meeting; and (ii) is not to be regarded as being present at the meeting for the purpose of determining whether a resolution has sufficient support to be adopted; and f) (g) must not execute any document on behalf of the company in relation to the matter unless specifically requested or directed to do so by the board. 3. Long-term loan from S\&H (Pty) Ltd to purchase spectrum on auction from Multiplex Spectrum is essential in the telecommunications industry. Spectrum refers to the radio frequencies assigned to mobile service providers and is measured in megahertz ( MHz ). The possibility for revenue grows as additional spectrum is purchased. Spectrum can be obtained through an auction from the applicable government department. Spectrum rights are valid for a period of 20 years. The below email was sent to the board. You came across this email as supporting audit evidence for new long-term loans entered into in 2023. 3.1 Details regarding auction of spectrum. READ THE REQUIRED PART ON PAGE 8 BEFORE YOU CONTINUE. Background information Your audit firm ABC Inc are the external auditor of Clouds (Pty) Ltd for the previous, four years. The company was launched in 2018 with a 4G data only network and progressed into the 5G space in 2019. The year-end of the company is the 30 June 2023. The company's operations are focused on the provision of wireless services including voice, data and messaging services to mainly suburban areas in South Africa. The head office is situated in Johannesburg, South Africa. Revenue comprises of service revenue for the provision of wireless services to the customer. Additional revenue is earned on the rental of modems which remain the property of Clouds. Both service revenue and rental of modems are billed and paid in arrears on a monthly basis. New customers undergo credit vetting prior to the creation of a sales order and customer contract. All sales processes and documentation are processed online via a live sales system. Internal controls are implemented over the issuing of modems from head office to the customer. These include a need for an approved customer application and the issuing of a sales order and customer contract by the sales department. The warehouse staff use a pre-numbered picking slip to select the modem and document the unique IMEI number. A warehouse clerk will complete a sequenced delivery note indicating the modems selected and transfer the modem to the despatch unit. The despatch clerk signs the electronic delivery note/picking slip to acknowledge transfer, whereafter the modems are then sent for delivery to the customer. The assigned delivery staff sigh as proof of receipt from the warehouse foreman on the electronic signature pad and also request the customer to do the same upon delivery. The electronic signature pad syncs automatically to Clouds sales database. This action signals the start of the contract for billing purposes. The following information relates to audit evidence obtained during the audit of Clouds for the financial year ended 30 June 2023. 1. Board of directors (governing body) Cloud has voluntarily adopted King IV. The Board of Directors (board) comprises of the following momhorc