Corporate governance Avengers Limited (Avengers) is a large distributor of consumer goods, general merchandise, home improvement equipment; and a wholesaler of basic foods in South Africa. Avengers governance structure consists of the Board of Directors, assisted by four committees (namely the Audit Committee, Remuneration Committee, Risk Governance Committee and Nominations Committee). Avengers' Board of Directors, as at 29 February 2021, consisted of the following individuals: Director Mr Hulk Mr Thor Mr Black Panther CA(SA) Mr Hawk Eye Mr Iron Man Mr Captain America Ms Black Widow Mr Spiderman Notes Position Age Years in position 1 & 2 Chairperson 55 13 2 & 3 Chief Executive Officer (CEO) 57 14 2 & 7 Chief Financial Officer (CFO) and 57 20 Company Secretary 2 & 4 Chief Operations Officer (COO) 56 15 2 Director Human Resources 55 15 5 & 8 Non-executive director 61 17 6 & 8 Non-executive director 46 1 8 Non-executive director 63 19 Notes 1. Mr Hulk owns 15% of the equity interest in Avengers and was appointed as the chairperson of the board by all the members of the board at the meeting on 1 August 2007. Mr Hulk served as the CEO of Avengers until 1 July 2007. He also served as the chairperson of the Audit Committee of Avengers for a number of years. 2. Messrs Thor and Hulk have been friends since their school years. They form part of the so- called "Superhero Club" (a name they earned while at school); Messrs Black Panther, Hawk Eye and Iron Man also belong to this club. 3. Mr Thor was appointed to the position of CEO of Avengers on 1 July 2007 by Mr Hulk and he served as a member of the Audit Committee of Avengers for a number of years. Mr Thor and Mr Hulk are the two members serving on the Audit Committee. 4. Mr Hawk Eye plays a significant role in the day-to-day management of Avengers as the coo. 5. Mr Captain America is the CEO of one of Avengers's significant suppliers. 6. Ms Black Widow serves on the boards of ten other companies from various industry sectors, and the Board of Avengers believes that it makes her a valuable asset to the group of companies. 7. Mr Black Panther informed the board of a possible contract relating to the import of retail stock. He was recently approached by an overseas company who indicated that there would be huge savings in store for Avengers. They also mentioned that they would make it worth his while if he assisted them in winning the contract. He had done some research on the company and found out that they are also involved in litigation relating to pollution at their manufacturing plants. He did not accept the contract. 8. Messrs Captain America, Black Widow and Spiderman are the three members serving on the Nominations Committee. The chairperson of the Remuneration Committee, Ms Black Widow, announced that she would resign as chairperson next month. Revenue and receipts - internal control You are a registered candidate auditor at an auditors firm. Your firm has been engaged to evaluate Avengers' internal control systems and you have been assigned to the revenue and receipts cycle. Ben Dekker, the financial accountant of Avengers is of the opinion that the application software is poorly designed and does not make satisfactory use of programmed controls. He informs you that the company is experiencing a number of problems in the cycle including the following: inaccurate and incomplete internal sales orders and picking slips being created. Revenue and receipts - community project As a corporate citizen, Avengers assisted a community bakery to register as a company, sell their goods in the canteen and expand their business. The bakery, registered as Bakeacake (Pty) Ltd, now manufactures a range of biscuits and small cakes that it sells to supermarkets, street vendors and the Avengers canteen. The newly appointed manager of Bakeacake has asked your fimm to review the systems within the company that deal with cash. You have been provided with the following information: From Monday to Friday between 07h00 and 09h00, street vendors can purchase biscuits and cakes from the "vendor shop" which is attached to the factory. The vendor shop is run solely by Ted Baker, an employee in the factory administration department. Sales are made only for cash. Cash received is placed in a large metal cashbox. If the vendor requests a receipt, a pre-printed numerically sequenced two-part cash receipt is made out by Ted Baker. He closes the vendor shop at 09h00, takes the cashbox with him and returns to his office in the factory. Before opening the shop on Monday mornings, he leaves the cash from the previous week's sales (in the locked cashbox) on the desk of the senior bookkeeper Cookie Oates. Only Cookie Oates and Ted Baker have keys to the cashbox that is used in the shop. Social media Mr Thor expressed the view that the use of social media in Avengers is rapidly growing as it is becoming more pervasive and impacting many parts of the business. He requested that your auditing firm should explain the social media exposure risks and the good practices that can be incorporated to prevent a social media crisis. 1.6 Identify and explain the weaknesses in the systems of Bakeacake (Pty) Ltd that deal with cash, based on the information given above. You are NOT required to make recommendations. Structure your answer under the following headings: (12) Weakness 1: Identify: What is the weakness... Explain: Why is it a weakness... Weakness 2: Presentation marks will be awarded if the answer is presented under the correct headings. (1) Corporate governance Avengers Limited (Avengers) is a large distributor of consumer goods, general merchandise, home improvement equipment; and a wholesaler of basic foods in South Africa. Avengers governance structure consists of the Board of Directors, assisted by four committees (namely the Audit Committee, Remuneration Committee, Risk Governance Committee and Nominations Committee). Avengers' Board of Directors, as at 29 February 2021, consisted of the following individuals: Director Mr Hulk Mr Thor Mr Black Panther CA(SA) Mr Hawk Eye Mr Iron Man Mr Captain America Ms Black Widow Mr Spiderman Notes Position Age Years in position 1 & 2 Chairperson 55 13 2 & 3 Chief Executive Officer (CEO) 57 14 2 & 7 Chief Financial Officer (CFO) and 57 20 Company Secretary 2 & 4 Chief Operations Officer (COO) 56 15 2 Director Human Resources 55 15 5 & 8 Non-executive director 61 17 6 & 8 Non-executive director 46 1 8 Non-executive director 63 19 Notes 1. Mr Hulk owns 15% of the equity interest in Avengers and was appointed as the chairperson of the board by all the members of the board at the meeting on 1 August 2007. Mr Hulk served as the CEO of Avengers until 1 July 2007. He also served as the chairperson of the Audit Committee of Avengers for a number of years. 2. Messrs Thor and Hulk have been friends since their school years. They form part of the so- called "Superhero Club" (a name they earned while at school); Messrs Black Panther, Hawk Eye and Iron Man also belong to this club. 3. Mr Thor was appointed to the position of CEO of Avengers on 1 July 2007 by Mr Hulk and he served as a member of the Audit Committee of Avengers for a number of years. Mr Thor and Mr Hulk are the two members serving on the Audit Committee. 4. Mr Hawk Eye plays a significant role in the day-to-day management of Avengers as the coo. 5. Mr Captain America is the CEO of one of Avengers's significant suppliers. 6. Ms Black Widow serves on the boards of ten other companies from various industry sectors, and the Board of Avengers believes that it makes her a valuable asset to the group of companies. 7. Mr Black Panther informed the board of a possible contract relating to the import of retail stock. He was recently approached by an overseas company who indicated that there would be huge savings in store for Avengers. They also mentioned that they would make it worth his while if he assisted them in winning the contract. He had done some research on the company and found out that they are also involved in litigation relating to pollution at their manufacturing plants. He did not accept the contract. 8. Messrs Captain America, Black Widow and Spiderman are the three members serving on the Nominations Committee. The chairperson of the Remuneration Committee, Ms Black Widow, announced that she would resign as chairperson next month. Revenue and receipts - internal control You are a registered candidate auditor at an auditors firm. Your firm has been engaged to evaluate Avengers' internal control systems and you have been assigned to the revenue and receipts cycle. Ben Dekker, the financial accountant of Avengers is of the opinion that the application software is poorly designed and does not make satisfactory use of programmed controls. He informs you that the company is experiencing a number of problems in the cycle including the following: inaccurate and incomplete internal sales orders and picking slips being created. Revenue and receipts - community project As a corporate citizen, Avengers assisted a community bakery to register as a company, sell their goods in the canteen and expand their business. The bakery, registered as Bakeacake (Pty) Ltd, now manufactures a range of biscuits and small cakes that it sells to supermarkets, street vendors and the Avengers canteen. The newly appointed manager of Bakeacake has asked your fimm to review the systems within the company that deal with cash. You have been provided with the following information: From Monday to Friday between 07h00 and 09h00, street vendors can purchase biscuits and cakes from the "vendor shop" which is attached to the factory. The vendor shop is run solely by Ted Baker, an employee in the factory administration department. Sales are made only for cash. Cash received is placed in a large metal cashbox. If the vendor requests a receipt, a pre-printed numerically sequenced two-part cash receipt is made out by Ted Baker. He closes the vendor shop at 09h00, takes the cashbox with him and returns to his office in the factory. Before opening the shop on Monday mornings, he leaves the cash from the previous week's sales (in the locked cashbox) on the desk of the senior bookkeeper Cookie Oates. Only Cookie Oates and Ted Baker have keys to the cashbox that is used in the shop. Social media Mr Thor expressed the view that the use of social media in Avengers is rapidly growing as it is becoming more pervasive and impacting many parts of the business. He requested that your auditing firm should explain the social media exposure risks and the good practices that can be incorporated to prevent a social media crisis. 1.6 Identify and explain the weaknesses in the systems of Bakeacake (Pty) Ltd that deal with cash, based on the information given above. You are NOT required to make recommendations. Structure your answer under the following headings: (12) Weakness 1: Identify: What is the weakness... Explain: Why is it a weakness... Weakness 2: Presentation marks will be awarded if the answer is presented under the correct headings. (1)