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Corporate Governance in Accountancy
AUE2602
UNISA
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Table of Contents
TOPIC 1: CORPORATE GOVERNANCE AND STATUTORY MATTERS ........................................... 4
1.1: THE BACKGROUND OF CORPORATE GOVERNANCE IN SOUTH AFRICA ........................................4
1.2: STATUTORY MATTERS ..............................................................................................................6
1.2.1: STANDARDS OF DIRECTORS CONDUCT ....................................................................................... 6
1.2.2: LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS ................................................................. 7
1.2.3: INDEMNIFICATION AND DIRECTORS' INSURANCE ...................................................................... 7
1.2.4: AUDIT COMMITTEES .................................................................................................................... 8
1.3: THE KING IV REPORT ON GOVERNANCE FOR SOUTH AFRICA .....................................................9
1.3.1: LEADERSHIP, ETHICS AND CORPORATE CITIZENSHIP .............................................................. 9
1.3.2: STRATEGY, PERFORMANCE AND REPORTING ........................................................................ 13
1.3.3: GOVERNANCE STRUCTURES AND DELEGATION .................................................................... 15
1.3.4: THE GOVERNANCE OF RISK .................................................................................................... 18
1.3.5: THE GOVERNANCE OF INFORMATION TECHNOLOGY ........................................................... 20
1.3.6: COMPLIANCE GOVERNANCE .................................................................................................. 22
1.3.7: THE GOVERNANCE OF REMUNERATION ................................................................................ 22
1.3.8: ASSURANCE ............................................................................................................................ 25
1.3.9: THE GOVERNANCE OF STAKEHOLDER RELATIONSHIPS ......................................................... 28
1.4: CORPORATE GOVERNANCE – INTERNATIONAL DEVELOPMENTS .............................................. 29
1.4.1: SARBANES-OXLEY ACT ............................................................................................................... 29
TOPIC 2: INTERNAL CONTROL .............................................................................................. 29
2.1: INTERNAL CONTROL ............................................................................................................... 29
2.1.1: DEFINITION OF INTERNAL CONTROL ......................................................................................... 29
2.1.2: LIMITATIONS OF INTERNAL CONTROL ....................................................................................... 31
2.2: COMPONENTS OF INTERNAL CONTROL ................................................................................... 31
2.2.1: CONTROL ENVIRONMENT ......................................................................................................... 31
2.2.2: RISK ASSESSMENT ...................................................................................................................... 32
2.2.3: INFORMAITON SYSTEMS ........................................................................................................... 33
2.2.4: CONTROL ACTIVITIES ................................................................................................................. 35
2.2.5: MONITORING OF CONTROLS ..................................................................................................... 37
2.2.6: SUMMARY OF COMPONENTS INTERNAL CONTROL .................................................................. 38
2.3: CONTROLS IN A COMPUTERISED ENVIRONMENT .................................................................... 39
2.3.1: GENERAL CONTROLS.................................................................................................................. 39
2.3.2: APPLICATION CONTROLS ........................................................................................................... 47
2.4: INTERNAL CONTROL FROM THE PERSPECTIVE OF THE EXTERNAL AUDITOR .............................. 53
2.4.1: OBTAINING AND UNDERSTANDING INTERNAL CONTROL......................................................... 53
2.4.2: SIGNIFICANT RISKS..................................................................................................................... 56
TOPIC 3: BUSINESS CYCLES ................................................................................................... 57
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3.1: THE ACCOUNTING SYSTEM AND BUSINESS CYCLES .................................................................. 57
3.2: FINANCIAL STATEMENTS ........................................................................................................ 58
TOPIC 4: REVENUE AND RECEIPTS CYCLE .............................................................................. 60
4.1: CREDIT SALES ......................................................................................................................... 60
4.1.1: ACTIVITIES AND FUNCTIONS IN THE CYCLE ............................................................................... 60
4.1.2: DOCUMENTS USED IN THE CYCLE.............................................................................................. 63
4.1.3: RISKS AND INTERNAL CONTROL IN THE CYCLE .......................................................................... 64
4.1.4: COMPUTERISATION IN THE CYCLE............................................................................................. 68
4.2: CASH SALES............................................................................................................................ 70
4.2.1: STAGES OF A CASH SALE ............................................................................................................ 70
4.2.2: RISKS AND INTERNAL CONTROL OVER A CASH SALE ................................................................. 70
TOPIC 5: ACQUISITIONS AND PAYMENTS CYCLE ................................................................... 72
5.1: ACTIVITIES AND FUNCTIONS IN THE CYCLE .............................................................................. 72
5.2: DOCUMENTS USED IN THE CYCLE............................................................................................ 73
5.3: RISKS AND INTERNAL CONTROL IN THE CYCLE ......................................................................... 73
5.4: COMPUTERISATION IN THE CYCLE .......................................................................................... 77
TOPIC 6: INVENTORY AND PRODUCTION CYCLE ................................................................... 79
6.1: ACTIVITES AND FUNCTIONS IN THE CYCLE ............................................................................... 79
6.2: DOCUMENTS USED IN THE CYCLE............................................................................................ 80
6.3: RISKS AND INTERNAL CONTROL IN WAREHOUSING ................................................................. 81
6.4: RISKS AND INTERNAL CONROL IN PRODUCITON ...................................................................... 82
6.5: INVENTORY COUNTS .............................................................................................................. 84
6.6: COMPUTERISATION IN THE CYCLE .......................................................................................... 87
6.7: INVENTORY VALUATION CONCEPTS ........................................................................................ 87
TOPIC 7: PAYROLL AND PERSONNEL CYCLE .......................................................................... 88
7.1: ACTIVITIES AND FUNCTIONS IN THE CYCLE .............................................................................. 89
7.2: DOCUMENTS USED IN THE CYCLE............................................................................................ 90
7.3: RISKS AND INTERNAL CONTROL IN THE CYCLE ......................................................................... 91
7.4: COMPUTERISAITON OF THE CYCLE .......................................................................................... 94
TOPIC 8: FINANCE AND INVESTMENT CYCLE ......................................................................... 97
8.1: CAPITAL EXPENDITURE ........................................................................................................... 97
8.1.1: CHARACTERISTICS OF CAPITAL EXPENDITURE........................................................................... 97
8.1.2: RISKS AND INTERNAL CONTROL FOR CAPITAL EXPENDITURE ................................................... 98
3
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TOPIC 1: CORPORATE GOVERNANCE AND STATUTORY MATTERS
1.1: THE BACKGROUND OF CORPORATE GOVERNANCE IN SOUTH AFRICA
Essentially King IV was introduced to keep South Africa abreast with local and international developments in
international corporate governance since King III was issued, and, as with the three previous King Reports, to provide
guidance to organisations which is relevant to the current world economic, environmental and social situation. The
drafting of King IV took place in the context of organisations having to contend with an increasingly dynamic and
demanding external environment. In this environment, good corporate governance is essential if an organisation is
to achieve prosperity for itself and the broader society.
In the forward to the King IV Report, the King committee makes the point that the 21st Century has been
characterised by fundamental changes in both business and society and that new global realities are severely testing
the leadership of companies and other organisations. These realities include:
• A growing societal inequality
• Climate change
• Over-consumption of natural resources
• Geological tensions
• Stakeholder expectations and transparency
• Rapid advancements in technology
• Less stable financial systems
• Increased corruption
Objectives of King IV (in the context of a company)
• Promote responsible corporate governance as integral to running the company and delivering governance
outcomes such as
o an ethical culture
o good performance
o effective control
o legitimacy
• Broaden (increase) the acceptance of the King IV Report by making it accessible and fit for implementation
across a variety of sectors and organisational types.
• Reinforce corporate governance as a holistic and interrelated set of arrangements to be understood and
implemented in an integrated manner.
• Encourage transparent and meaningful reporting to stakeholders.
• Present corporate governance as concerned with not only structure and process, but also with ethical
consciousness and behaviour.
4
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Corporate Governance in Accountancy
AUE2602
UNISA
Downloaded by: bsithole |
Distribution of this document is illegal
, Stuvia.com - The study-notes marketplace
Table of Contents
TOPIC 1: CORPORATE GOVERNANCE AND STATUTORY MATTERS ........................................... 4
1.1: THE BACKGROUND OF CORPORATE GOVERNANCE IN SOUTH AFRICA ........................................4
1.2: STATUTORY MATTERS ..............................................................................................................6
1.2.1: STANDARDS OF DIRECTORS CONDUCT ....................................................................................... 6
1.2.2: LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS ................................................................. 7
1.2.3: INDEMNIFICATION AND DIRECTORS' INSURANCE ...................................................................... 7
1.2.4: AUDIT COMMITTEES .................................................................................................................... 8
1.3: THE KING IV REPORT ON GOVERNANCE FOR SOUTH AFRICA .....................................................9
1.3.1: LEADERSHIP, ETHICS AND CORPORATE CITIZENSHIP .............................................................. 9
1.3.2: STRATEGY, PERFORMANCE AND REPORTING ........................................................................ 13
1.3.3: GOVERNANCE STRUCTURES AND DELEGATION .................................................................... 15
1.3.4: THE GOVERNANCE OF RISK .................................................................................................... 18
1.3.5: THE GOVERNANCE OF INFORMATION TECHNOLOGY ........................................................... 20
1.3.6: COMPLIANCE GOVERNANCE .................................................................................................. 22
1.3.7: THE GOVERNANCE OF REMUNERATION ................................................................................ 22
1.3.8: ASSURANCE ............................................................................................................................ 25
1.3.9: THE GOVERNANCE OF STAKEHOLDER RELATIONSHIPS ......................................................... 28
1.4: CORPORATE GOVERNANCE – INTERNATIONAL DEVELOPMENTS .............................................. 29
1.4.1: SARBANES-OXLEY ACT ............................................................................................................... 29
TOPIC 2: INTERNAL CONTROL .............................................................................................. 29
2.1: INTERNAL CONTROL ............................................................................................................... 29
2.1.1: DEFINITION OF INTERNAL CONTROL ......................................................................................... 29
2.1.2: LIMITATIONS OF INTERNAL CONTROL ....................................................................................... 31
2.2: COMPONENTS OF INTERNAL CONTROL ................................................................................... 31
2.2.1: CONTROL ENVIRONMENT ......................................................................................................... 31
2.2.2: RISK ASSESSMENT ...................................................................................................................... 32
2.2.3: INFORMAITON SYSTEMS ........................................................................................................... 33
2.2.4: CONTROL ACTIVITIES ................................................................................................................. 35
2.2.5: MONITORING OF CONTROLS ..................................................................................................... 37
2.2.6: SUMMARY OF COMPONENTS INTERNAL CONTROL .................................................................. 38
2.3: CONTROLS IN A COMPUTERISED ENVIRONMENT .................................................................... 39
2.3.1: GENERAL CONTROLS.................................................................................................................. 39
2.3.2: APPLICATION CONTROLS ........................................................................................................... 47
2.4: INTERNAL CONTROL FROM THE PERSPECTIVE OF THE EXTERNAL AUDITOR .............................. 53
2.4.1: OBTAINING AND UNDERSTANDING INTERNAL CONTROL......................................................... 53
2.4.2: SIGNIFICANT RISKS..................................................................................................................... 56
TOPIC 3: BUSINESS CYCLES ................................................................................................... 57
2
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3.1: THE ACCOUNTING SYSTEM AND BUSINESS CYCLES .................................................................. 57
3.2: FINANCIAL STATEMENTS ........................................................................................................ 58
TOPIC 4: REVENUE AND RECEIPTS CYCLE .............................................................................. 60
4.1: CREDIT SALES ......................................................................................................................... 60
4.1.1: ACTIVITIES AND FUNCTIONS IN THE CYCLE ............................................................................... 60
4.1.2: DOCUMENTS USED IN THE CYCLE.............................................................................................. 63
4.1.3: RISKS AND INTERNAL CONTROL IN THE CYCLE .......................................................................... 64
4.1.4: COMPUTERISATION IN THE CYCLE............................................................................................. 68
4.2: CASH SALES............................................................................................................................ 70
4.2.1: STAGES OF A CASH SALE ............................................................................................................ 70
4.2.2: RISKS AND INTERNAL CONTROL OVER A CASH SALE ................................................................. 70
TOPIC 5: ACQUISITIONS AND PAYMENTS CYCLE ................................................................... 72
5.1: ACTIVITIES AND FUNCTIONS IN THE CYCLE .............................................................................. 72
5.2: DOCUMENTS USED IN THE CYCLE............................................................................................ 73
5.3: RISKS AND INTERNAL CONTROL IN THE CYCLE ......................................................................... 73
5.4: COMPUTERISATION IN THE CYCLE .......................................................................................... 77
TOPIC 6: INVENTORY AND PRODUCTION CYCLE ................................................................... 79
6.1: ACTIVITES AND FUNCTIONS IN THE CYCLE ............................................................................... 79
6.2: DOCUMENTS USED IN THE CYCLE............................................................................................ 80
6.3: RISKS AND INTERNAL CONTROL IN WAREHOUSING ................................................................. 81
6.4: RISKS AND INTERNAL CONROL IN PRODUCITON ...................................................................... 82
6.5: INVENTORY COUNTS .............................................................................................................. 84
6.6: COMPUTERISATION IN THE CYCLE .......................................................................................... 87
6.7: INVENTORY VALUATION CONCEPTS ........................................................................................ 87
TOPIC 7: PAYROLL AND PERSONNEL CYCLE .......................................................................... 88
7.1: ACTIVITIES AND FUNCTIONS IN THE CYCLE .............................................................................. 89
7.2: DOCUMENTS USED IN THE CYCLE............................................................................................ 90
7.3: RISKS AND INTERNAL CONTROL IN THE CYCLE ......................................................................... 91
7.4: COMPUTERISAITON OF THE CYCLE .......................................................................................... 94
TOPIC 8: FINANCE AND INVESTMENT CYCLE ......................................................................... 97
8.1: CAPITAL EXPENDITURE ........................................................................................................... 97
8.1.1: CHARACTERISTICS OF CAPITAL EXPENDITURE........................................................................... 97
8.1.2: RISKS AND INTERNAL CONTROL FOR CAPITAL EXPENDITURE ................................................... 98
3
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TOPIC 1: CORPORATE GOVERNANCE AND STATUTORY MATTERS
1.1: THE BACKGROUND OF CORPORATE GOVERNANCE IN SOUTH AFRICA
Essentially King IV was introduced to keep South Africa abreast with local and international developments in
international corporate governance since King III was issued, and, as with the three previous King Reports, to provide
guidance to organisations which is relevant to the current world economic, environmental and social situation. The
drafting of King IV took place in the context of organisations having to contend with an increasingly dynamic and
demanding external environment. In this environment, good corporate governance is essential if an organisation is
to achieve prosperity for itself and the broader society.
In the forward to the King IV Report, the King committee makes the point that the 21st Century has been
characterised by fundamental changes in both business and society and that new global realities are severely testing
the leadership of companies and other organisations. These realities include:
• A growing societal inequality
• Climate change
• Over-consumption of natural resources
• Geological tensions
• Stakeholder expectations and transparency
• Rapid advancements in technology
• Less stable financial systems
• Increased corruption
Objectives of King IV (in the context of a company)
• Promote responsible corporate governance as integral to running the company and delivering governance
outcomes such as
o an ethical culture
o good performance
o effective control
o legitimacy
• Broaden (increase) the acceptance of the King IV Report by making it accessible and fit for implementation
across a variety of sectors and organisational types.
• Reinforce corporate governance as a holistic and interrelated set of arrangements to be understood and
implemented in an integrated manner.
• Encourage transparent and meaningful reporting to stakeholders.
• Present corporate governance as concerned with not only structure and process, but also with ethical
consciousness and behaviour.
4
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