You are an Auditor at Rigs Limited for a group of companies that fall within a

consolidation. The Holding Company is Happy Limited $($Happy$),$ with a year ending

$31$ October $2023.$ Happy Limited is registered on the Johannesburg Stock Exchange

$($JSE$)$ and is VAT$-$registered with SARS. Final materiality was set at R$3500000.$

Background information

Happy is the parent company of two other companies that are both subsidiaries,

namely Flower $($Pty$)$ Ltd and Bees $($Pty$)$ Ltd$.$

Happy holds $80\%$ shares in Flowers $($Pty$)$ Ltd and $100\%$ shares in Bees $($Pty$)$ Ltd$.$

Happy Limited$$s subsidiaries have the same financial year end as Happy Limited on

$31$ October $2023.$

Happy is a clothing retail company with numerous retail stores across South Africa.

Happy Limited expanded its business to the United Kingdom in the current financial

year ending $31$ October $2023.$

Flowers $($Pty$)$ Ltd is a manufacturer of clothing and supplies the clothing to Happy at

a cost below market price. Flowers $($Pty$)$ Ltd supplies the manufactured clothing to

other retailers at a cost applicable to the market price. Flowers $($Pty$)$ Ltd receives raw

materials to manufacture the clothing from both local and foreign suppliers.

Bees $($Pty$)$ Ltd is a repair company that repairs equipment in manufacturing companies

and provides repair services for Flowers $($Pty$)$ Ltd and other manufacturing companies.

Retail stores in the Western Cape

There were heavy floods on $01$ October $2023$ in the Western Cape and Happy$$s retail

stores were affected by the floods. The flood caused damage to the inventory in the

retail stores in the amount of R$4250000.$ Management refused to write off the

inventory after the auditor advised that the inventory should be written off.

Financial assistance to Flowers $($Pty$)$ Ltd

Happy provided financial assistance to Flowers $($Pty$)$ Ltd after approval at the board

meeting but without a special resolution approved by the shareholders in order to

assist the company in buying back non$-$controlling shares held by the directors of

Flowers $($Pty$)$ Ltd$.$ Written notice was not provided to Happy Limited$$s shareholders.

Immediately after providing financial assistance, Happy does not satisfy the solvency

and liquidity test.

Ignite $($Pty$)$ Ltd

Ignite $($Pty$)$ Ltd has a $15\%$ interest in Happy but does not form part of the group of

consolidations. The $15\%$ interest is recorded as an investment in Happy$$s financial

statements below the non$-$current assets category.

Ignite $($Pty$)$ Ltd is controlled by Mr L Smith, the husband of Mrs S Smith, the Chief

Executive Director $($CEO$)$ of Happy.

Sustainability Report

Flower $($Pty$)$ Ltd manufactures clothing that creates environmental issues as follows:

$$ Water usage, energy consumption, and waste generation since there are water

shortages and load$-$shedding issues.

$$ Labour rights, including fair wages, working hours, and workplace safety.

$$ The environmental impact of its products throughout their lifecycle, from raw

materials to production, transportation, and disposal.

$$ Waste generation and emissions, especially regarding hazardous materials or

pollutants.

$$ Eco$-$friendly materials and processes are used.

$$ Compliance with all relevant environmental laws and regulations

$$ We provide community development projects, charitable contributions, and

partnerships with social organisations.

Due to this, Flower $($Pty$)$ Ltd wants the auditors to perform procedures to provide

assurance in the sustainable report.

REQUIRED

Identify and describe the risk of material misstatement at the overall

financial statement level for the audit of Happy Limited$$s consolidated $2023$

annual financial statements. You should focus mainly on the risk of fraud and

error