Question
Question 1 Larope Builders &Miners Ltd (LBML)is a ferry building company located in Mwera, Balungu district 23kms from the shores of Lake Victoria basin. The
Question 1
Larope Builders &Miners Ltd (LBML)is a ferry building company located in Mwera,
Balungu district 23kms from the shores of Lake Victoria basin. The lake basin is
endowed with alluvial deposits that are highly sought after by the construction
industry. The company is owned by Mr. Shammy Yon, a Chinese national. LBML
boasts of over 30 employees. LBML was licensed by the Investment Authority
(IA) with a certificate to construct a ferry building yard in Mwera.
Early this year, LBML started excavation of sand from Lake Victoria basin without
obtaining a license from the Environment Authority (EA) to excavate sand.
Though the company officials had submitted the paper work to EA, the
application had been rejected on grounds that the company's activities would
have a negative impact on the eco-systemthereby killing the aquatic organisms
in the lake. Ms. Naome Kareka, the EA spokesperson, said "LBML was only
permitted to manufacture ferries, as needed by the line ministry, and must first
seek approval to engage in sand extraction. As EA we state that LBML's activities
of engaging in sand mining are illegal. We have warned LBML against tampering
with the mining sites because any destruction may spark off a serious ecological
disaster that we may fail to handle as a country."
Another standoff has erupted between EA and the district officials who view
LBML's activities as one of the district revenue sources in addition to sustainable
developmental programmes highlighted in LBML's 10 year strategic plan. EA
officials accuse Balungu district officials of bribery and corruption to endorse the
sand mining project, an accusation they have vehemently denied.
The Environmentalists Association of Uganda (EAU) has on several occasions
warned that unchecked sand mining activities in lakes and major swamps across
the country will lead to a serious ecological disaster. The ministry of Energy and
Mineral Resources has also faulted the EA for issuing sand mining licenses to
several companies without consulting the line ministry as stipulated in the law.
LBML's board of directors have engaged LKL Consultants Ltd to provide an
environmental impact assessment report as a step to streamline the company's
sand mining operations. The team is to be headed by CPA Stella Alaba, who is an
accountant in public practice assisted by other accountants in business to be able
to present the report in the agreed time During the exercise, CPA Stella Alaba discovered that one of the team members
had sent an email of a draft report to the Balungu district officials before
presenting it to board members. She also suspects that the team member was
compromised. She considers this action as a breach of confidentiality, as
professional accountants. You are a senior member of the team.
Required:
(a) Draft an environmental impact assessment report discussingthe:
(i) socio-economic, cultural and health impacts of LBML's sand mining
activities in Mwera.
(6 marks)
(ii) recommended eco-friendly practices that LBML can carry out in
Mwera.
(5 marks)
(b) (i) Explain the term 'sustainable development'
(1 mark)
(ii) Evaluate the challenges LBML will face when implementing her
sustainable development programmes in Mwera
(3 marks)
(c) Prepare brief for CPA Stella Alaba to use in the team's review meeting
focusing on:
(i) key aspects of the fundamental principle of confidentiality as per
ICPAU's code of ethics.
(4 marks)
(ii) circumstances where professional accountants are required to
disclose confidential information or when such disclosure may be
appropriate.
(2 marks)
(iii) difference between accountants in public practice and accountants in
business giving at least one benefit for each.
(4 marks)
(d) Analyse the consequences of unethical behaviour to the individuals
allegedly involved in bribery and Question 2
In May 2018, the Institute of Corporate Governance of Uganda (ICGU) organised
the first ever Corporate Governance Awards in Kampala to celebrate the best
corporate governance practitioners. In his opening remarks, the secretary of
ICGU said that "corporate governance is key to a company's success.....many
organisations have put boards in place but are doing things which do not
necessarily add value to the business".He further added that "knowing the
Organisation for Economic Co-operation and Development (OECD) principles is
one thing and putting such principles into action is another thing altogether". He
thanked financial institutions in Uganda for trying to embrace the culture of
corporate governance with most of their annual reports having a corporate
governance report appended by a corporate social responsibility (CSR) review.
Among the participants in the awards ceremony was Mr. Mufupi Allan, the
Managing Director of Mufupi Holdings Ltd (MHL), a family owned business. He
wondered how he can apply the corporate governance best practices especially
the OECD principles in his company since he appoints the board and at the same
time is the board chairman. He also believes that with your guidance as a
consultant, he will be enlightened on the objectives and mandate of the ICGU.
Required:
(a) Write n email to the board chairman of MHL explaining the:
(i) objectives of establishing the Institute of Corporate Governance of
Uganda.
(3 marks)
(ii) guidelines for corporate governance forwarded by Institute of
Corporate Governance of Uganda.
(4 marks)
(iii) recommendations and observations provided by the OECD Principles
of Corporate Governance.
(6 marks)
(b) Discuss how financial institutions would benefit from their corporate social
responsibility policies in achieving their overall goals.
(7 marks)corruption. goals.
(7 marks)corruption.
(5 marks)
Question 3
Orphaned Children Uganda (OCU) is a non-governmental organization (NGO)
whose principal activity is to address the challenges of the growing number of
orphaned children in Uganda. OCU's main objective is to ensure that orphaned
children keep in school. OCU pays the school fees, purchases uniforms and offers
scholastic materials for the beneficiaries.
OCUreceives funding from two donors in the United Kingdom.The donors have
received reports from a whistleblower claiming that the donations are being
misappropriated.
You are an audit senior at DEN &Co and your firm has been auditing OCU for the
past three years. This poses a risk to the firm arising from negligence should
these allegations be true.
Your review of the firm's audit files for the last three audits have revealed that
there was no audit strategy for OCU's audit assignment. There was also no
training on audit postulates.
Required:
(a) Discuss the various measures Den & Co can adopt to minimise incidences
of negligence in relation to the audits.
(6 marks)
(b) Discuss with your engagement manager the consideration in establishing
an audit strategy for a client like OCU.
(6 marks)
(c) Explain to the audit manager what you consider to be the postulates of
auditing.
(8 marks)
(Total 20 marks)
Question 4
Posh Furniture Ltd (PFL) is in the business of making and selling furniture for
both office and domestic use. PFL's workshop is located at Kampala industrial
area, and has showrooms in Kampala, Mbarara and Mbale. PFL has an annual
turnover of over Shs 700 million.
Your Audit firm ZY & Co. has been outsourced as the internal auditors of PFL.
The directors have indicated to you that they have controls in place though these
require significant improvement. ZY & Co. is expected to carry out quarterly
audits and present their findings to the shareholders.
Required:
Explain the:
(a) (i) control procedures you would expect to find at PFL. (6 marks)
(ii) elements of internal control that PFL should employ. (8 marks)
(b) Discuss withthe directors the contents of an internal audit report.
(6 marks)
(Total 20 marks)
Question 5
Your firm, IPK & Co. is the auditor of Sweet Beverages Ltd (SBL) for the year
ended 30 June, 2018. The company made a profit before tax of Shs 500 million.
As part of the audit team, you are in charge of auditing cost of sales/purchases
(Shs2 billion) in the profit or loss account and inventory in the statement of
financial position (Shs 1 billion) and preparing the necessary letters for external
confirmations.
SBL has a bank balance Shs 100 million, trade receivables Shs 300 million,
inventory held by third parties Shs 100 million, a loan Shs 600 million from WTY
Bank and trade payables Shs 200 million.
Your reviews of various correspondences relating to the purchases indicate that
purchases Shs 50 million were returned to suppliers. Further investigations
revealed that this amount of Shs50million moved from the inventory ledger to
cost of sales ledger. No further adjustments were passed to reflect the purchase
returns in the financial statements.
Required:
Discuss:
(a) (i) the audit procedures you will use in relation to purchasesof SBL.
(10 marks)
(ii) with the audit manager, the external confirmations necessary during
the audit of SBL.
(6 marks)
(b) Explain why a qualified opinion -'except for' may be appropriate in case no
adjustment is made to the financial statements in relation to the Shs 50
million.
Question 6
Musoke owns a restaurant in Nakawa market that prepares a variety of dishes.
The restaurant startedhumbly but has grown over time due to the monopoly it
enjoys. The growth has created a large appetite for cash as operational
expenses increase.The prices of foodstuffs have been rising and this has led to
increased costs. Musoke sometimes buys and stocks foodstuffs without
considering his customers' demand and this has created unnecessary inventory.
Recently, the Uganda Registration Services Bureau, Uganda Revenue Authority
and Kampala City Council Authority registered all traders in Nakawa to enable
them comply with their statutory obligations. Musoke has no proper record
keeping system. He just estimates cash inflows and outflows. This has made it
difficult for him to file tax returns. There is strain on financial resources as the
business continues to grow.
A few months ago, two of his former employees opened up restaurants in the
neighborhood. This has reducedMusoke'scustomers and consequently his profit
margin. He is frustrated by the competition. He has decided to start a hardware
outletin Kibuye, Kampala where he is devoting most of his energies. This has
affected the management, quality of food served, customer care, commitment to
the restaurant thereby threatening its success and survival. Musoke is perturbed
and would like to know how he can reduce pressure on his financial resources
and promote success of the business. He has requested for your professional
input.
Required:
Explain to Musoke the:
(a) strategieshe should use to overcome pressures on existing financial
resources to enable the restaurantregain its growth pattern.
(5marks)
(b) factors that should be considered fora successful business venture.
(5 marks)
(Total 10marks)
Question 7
(a) Explain the factors entrepreneurs should consider when evaluating a
business.
(6 marks)
(b) Describe the tools that can be used in risk assessment of a business
venture
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