THURSDAY: 16 December 2021.                                                                                                                Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. QUESTION ONE


Pure Water Technology (PWT) is a water treatment company providing comprehensive and integrated engineering solutions for water purification and waste water treatment systems. The company was incorporated in Zambia in 2008 but has operations in many countries in Africa and South America.

In 2009, the company diversified its operations to cover Engineering, Procurement, Construction and Commissioning (EPCC) contracts for water purification systems and waste water treatment systems.

Most of PWT’s projects are generally labour intensive and they require considerable upfront capital outlay. The company has been facing financial problems leading to delayed completion of projects. Due to a weak capital base, the company was forced to raise finances in 2011 through a bond issue.

Although the company raised Sh.1 billion, the funds were still inadequate to ensure PWT completed projects in time and to the satisfaction of its clients and other stakeholders.

In May 2013, PWT entered into a strategic alliance with TII Infrastructure, a private equity firm from the United Kingdom. TII injected the much needed funds into PWT with the hope that PWT would be able to complete all pending projects and secure more businesses in the countries they were in operation. In total, PWT got Sh.2 billion from TII in exchange for a 40% shareholding. The market value of the 40% stake however was Sh.4 billion. PWT continued to post poor results despite raising significant finances from TII Infrastructure. The poor performance of PWT in some countries was attributed to harsh micro economic conditions, erratic cash flows due to low projects completion rates and mismanagement of projects.

Before the strategic alliance with TII Infrastructure, PWT’s finance cost was very high as the company was highly geared. This depleted projects money as a lot of inflows were first used to repay debts.

Although PWT initially was able to leverage on TII Infrastructure’s financial muscle and business expertise, the initial shareholders value had greatly been eroded. The shareholders felt short changed since they were not consulted when PWT’s directors arranged for the strategic alliance with TII. It later emerged that TII infrastructure was owned by the directors of PWT and this matter was not declared in the directors conflict of interest register. The shareholders of PWT forced an extraordinary general meeting in August 2015 with the aim of dismissing the directors.

During the meeting, shareholders argued that the directors did not promote the success of their company, were secret owners of TII Infrastructure and should be held accountable for issue of shares to III Infrastructure at a grossly discounted price. Levi Smart, one of the shareholders felt that deterioration of the financial health of the company was as a result of poor leadership, corporate misgovernance and directors selfish interests. He further argued that the board of directors lacked diversity in

competencies as all the six directors were drawn from engineering and energy sectors. Another shareholder argued that the directors of PWT had secretly been planning to take over PWT through TII Infrastructure.

The Board of PWT appointed Mape Associates (MA), a corporate secretarial firm to carry out a governance and compliance audit and prepare a report. The firm hit the ground running before getting a formal engagement letter.



1.         During the audit, the Board of Pure Water Technology (PWT) requested Mape Associates (MA) to enlighten them on the importance of compliance certificate in governance audits.

Assuming you were tasked with this role, outline five roles played by compliance certificate.                                   (5 marks)

2.           Mape Associates are expected to carry out a governance and compliance audit for PWT.


Highlight seven contents of a governance and compliance audit report that Mape Associates must include in the report.    (7 marks)

3.            The strategic alliance between PWT and PII Infrastructure left many shareholders dissatisfied.

Assuming that Mape Associates recommended in their report that a forensic audit be carried out, highlight five objectives of a forensic audit.                                                                                                                                               (5 marks)

4.          Discuss five challenges that Mape Associates could face while gathering audit evidence.                                                (10 marks)

5.           Examine five merits of an external peer review of Mape Associates’ governance and compliance audit work at Pure Water Technology.                                                                                                                                                               (5 marks)

6.            As a best practice, it is advisable to start a governance and compliance audit after receiving an engagement letter.

Assess four risks that Mape Associates could face for starting the work before receiving an engagement letter. (8 marks)

(Total: 40 marks)



1.          In order to ensure good governance in our institutions, the Board should ensure the management undertakes a governance audit.

In view of the above:

Outline eight parameters which should be covered in a governance audit.                                                          (8 marks)

Describe five documents that a governance auditor would require for a desk review prior to conducting a governance audit.                                                                                                                                                 (5 marks)

2.          Explain two circumstances under which the engagement of a governance auditor might be terminated.               (2 marks)

(Total: 15 marks)



1.          Analyse five items that might be included in a management representation letter.                                         (5 marks)

2.          In a governance audit carried out in a state corporation, the governance auditor observed that there were material weaknesses in internal controls related to the prevention of fraud and errors.

With reference to the above statement:

Explain the recommendations you would give to the management and the Board of the state corporation to address the weaknesses.       (5 marks)

Explain five limitations of internal control systems.                                                                                             (5 marks)

(Total: 15 marks)



1.          Discuss four types of governance and compliance audit evidence.                                                                                      (8 marks)

2.          Summarise seven professional principles that guide a governance auditor and his engagement team while conducting a governance audit.                                                                                                                                                              (7 marks)

(Total: 15 marks)



1.           Examine eight post governance audit events that could be included in the governance and compliance audit report. (8 marks)

2.          Describe seven components of a governance audit report.                                                                                                   (7 marks)

(Total: 15 marks)

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