Companies Tutorial 1
EXTERNAL AUDITOR:
QUALIFIED REPORT: NEGATIVE REPORT.
UNQUALIFIED REPORT: POSITIVE REPORT.
1.
What do you understand by the term “limited liability” and “separate legal entity” in connection with companies?
SEPARATE LEGAL ENTITY – The company is viewed as a separate legal person, it can sue or be sued, and is also responsible for the payment of income tax.
• Video 1
2. Companies form part of multi-million rand organisations.
List and explain 2 main advantages that companies contribute to a country.
Payment of income tax – used by the government for infrastructure
• Video 2
3. As a director of a public company you are asked to write a programme of what will take place at the annual general meeting.
Include in your programme important financial statements to be discussed as well a few examples of the kind of decisions that can take place in relation to companies.
A. WELCOME ADDRESS BY EXISTING DIRECTORS
B. EXPLAINATION OF FINANCIAL STATEMENTS(INCOME STATEMENT, BALANCE SHEET, NOTES TO THE FINANCIAL STATEMENTS, CASH FLOW STATEMENTS)
C. QUESTIONS OF SHAREHOLDERS
D. ELECTION OF NEW BOARD OF DIRECTORS
E. ELECTION OF EXTERNAL AUDITOR
F. CLOSING ADDRESS
• Video 3
4. A friend of yours has bought shares in a company and would like to know:
• the difference between an external auditor and an internal auditor.
• the difference between a qualified and an unqualified audit report.
Works in the company daily, is responsible for checking the financial records and detecting fraud, also reports to directors
Is appointed at the Annual General Meeting(AGM), by shareholders and therefore reports to them, checks only a sample of information in order to determine whether the financial statements are fairly presented.
The report requires further explanation(quantify) on some aspects.
All is in order, no further explanations required.
Video 4
5. You currently have 300 000 shares in a company.
This represents 40% of the issued shares.
If the company has a par value of R5 and an authorised share capital 5 000 000 shares, how many shares should you purchase when the company decides to issue all the remaining shares in order to have a controlling interest in the company.
• Video 5
6. Explain why companies must audited by an independent auditor from a legal perspective.
Therefore according to the Company’s Act as required by law an unbiased view from an independent is required with the qualifications and credibility to do so.
• Video 6
7. Explain how the role of an independent auditor differs from that of an internal auditor?
An internal auditor is responsible for checking all transactions, detecting fraud and ensuring GAAP principles are adhered to.
• Video 7