TUESDAY: 5 April 2022. Morning paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of each question. Do NOT write anything on this paper.
QUESTION ONE
ZION HOLDINGS LIMITED(ZHL)
Zion Holdings Limited (ZHL) is a diversified investment company regulated under the Companies Act with a corporate structure consisting of a number of subsidiaries., The main activities. of the subsidiaries are the holding of investments in various industries. Most of these subsidiaries are registered in various low tax jurisdictions, Although different shareholding percentages apply to the various layers of the structure, .ZHL seems to have controlling interests in the subsidiaries although this cannot be determined with certainty.
ZHL has a board of directors comprised mostly of relatives of the majority shareholder Makenzi Odom, a regional dollar billionaire. with ‘government ties in most countries in the region. Board meetings are not regular and the employees of the company are not privy to the business that is discussed by the Board. Policy decisions are communicated by the Group Managing Director who is the son of Makenzi Odom to managers in the group-. Minority ‘shareholders have on several occasions complained that information provided to them by the holding company is usually scanty and always released late. In the organisation structure, the company has a provision for a compliance department, but compliance officers have never been employed to make the department functional.
Debits and Credits Associates (DCA) is an accounting firm offering administration, bookkeeping and corporate services to ZHL. The fees generated by DCA from ZHL amount to more than 5% of the firm’s annual turnover. DCA suspects that ZHL is a holder of other undisclosed companies. which may be administered by other service providers in the country, but. this information could not be verified with certainty.. Overall, there seems to be a tendency for secrecy when the employees of DCA seek to obtain information and documentation from the people acting as the representatives. of ZHL hence, DCA is unable to identify the beneficial owners of ZHL. Information on the beneficial ownership and control of-ZHL is somewhat scanty, although, DCA suspects that the whole structure belongs Makenzi Odom. Makenzi Odom wields a significant amount of power and he is known for being a major financier of political parties in the region.. This makes him to have close links with the host governments where his investments are domiciled. He also has. vast. interests to a number of different industries and holds key positions in the Board of Directors of major regional companies.
Through threats of sanctions by the Registrar of Companies.. to ZHL, DCA, has now managed to receive the necessary documentation in order to carry out the ‘bookkeeping of these companies for the last two years and this documentation revealed the following;
- The investments in various companies, especially start-ups, are acquired and are disposed of within a short period of time always at a profit.
- The subsidiary companies of ZHL have numerous bank accounts both in the country, regionally and in offshore tax havens and finds are being transferred between these bank accounts immediately upon deposit.
- The invoices for consulting and management services are predominantly issued to foreign companies. DCA accidentally found out that the billionaire owner of ZHL and his family are members of Board of Directors of the foreign companies.
ZHL has for a long time defaulted in meeting ‘regulatory requirements and is suspected of being part of a regional money laundering syndicate. Your corporate services firm has been appointed to carry out a forensic, governance and compliance audit of ZHL and make a report to the Registrar of Companies and the Economic Crimes Unit, an investigative unit under the. Directorate of Criminal Investigations.
Required
Analyse the possible audit evidence that may indicate money laundering activities at ZHL. (10 marks)
Outline five corporate governance principles that ZHL seems to have violated. (5 marks)
Describe seven challenges which you -are likely to encounter in carrying out the governance and compliance audit at ZHL. (7 marks)
With reference to the governance and compliance responsibilities, analyse five roles that a compliance officer would have played at ZHL. (10 marks)
Describe the term “beneficial owner” as used in the case. (2 marks)
Suggest six reasons why the government requires companies such as ZHL to disclose beneficial owners. (6 marks)
(Total: 40 marks)
QUESTION TWO
1. Explain four sources of governance audit criteria. (4 marks)
2. Evaluate six governance and compliance risks that organisations face in the digital era. (6 marks)
3. Justify the usefulness of governance and compliance audits to various stakeholders of a .company. (5 marks)
(Total: 15 marks)
QUESTION THREE
1. As a newly accredited governance auditor, illustrate five instances where an auditor may be found guilty of professional misconduct. (5 marks)
2. Your secretarial firm has received a request fOr proposal to conduct a governance audit for a multinational client.
Required:
Formulate the key headings of your proposal for professional governance auditing services for the prospective client. (5 marks)
3. Summarise five factors to consider during the preparation of governance audit working papers to make them more effective. (5 marks)
(Total: 15 marks)
QUESTION FOUR
1. Explain four reasons why a governance auditor should maintain audit files. (4 marks)
2. Summarise four benefits of governance audit checklist to the governance auditor. (4 marks)
3. Highlight four determinants of the reliability of governance and compliance audit evidence. (4 marks)
4. Propose three potential impacts of a qualified governance and compliance audit report. (3 marks)
(Total: 15 Marks)
QUESTION FIVE
1. When it comes to implementing governance and compliance audit recommendations, the buck stops with the Board.
With reference to the above statement, outline four roles of the Board of Directors. (4 marks)
2. Explain the term “subsequent events” in relation to governance and compliance audit. (2 marks)
3. Justify the practice of peer review in governance and compliance audit assignments. (5 marks)
4. Describe four parameters that could be evaluated in a governance award scheme such as Champions of Governance (COG) AwardS, (4 marks)
(Total: 15 marks)
