QUESTION 3: AUDITING AND THE AUDIT REPORT 3.1. Explanations of highlighted words: pages 14 to 26: This indicates the scope of the audit*, specifying the particular sections or pages of the financial statements that were examined by the auditors. fair presentation*: This means that the financial statements accurately reflect the company's financial position, financial performance, and cash flows in all material respects, in accordance with the applicable financial reporting framework. except for the figure of the directors fees: This is a qualification in the audit opinion. It means the auditor found a material misstatement or was unable to obtain sufficient appropriate audit evidence regarding the directors' fees, and therefore, the financial statements are not fairly presented in this specific area. This results in a qualified audit opinion*. International Financial Reporting Standards (IFRS): These are a set of high-quality, globally accepted accounting standards issued by the International Accounting Standards Board (IASB). They provide a common framework for preparing financial statements, ensuring comparability and transparency* across different companies and countries. Companies Act (Act 71 of 2008)*: This is the primary legislation in South Africa that governs the formation, operation, and dissolution of companies. It sets out legal requirements for financial reporting, auditing, and corporate governance that companies must comply with. independent: This refers to the auditor's objectivity and freedom from any financial or personal relationships with the company being audited that could impair their ability to form an unbiased opinion. Auditor independence* is crucial for the credibility of the audit report. ethical responsibilities*: These are the moral principles and professional conduct standards that auditors must adhere to, including integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. For example, an auditor must not accept gifts from a client. sufficient and appropriate: This refers to the quantity (sufficiency) and quality (appropriateness) of audit evidence gathered. Sufficient evidence means enough evidence to support the auditor's opinion, while appropriate* evidence means it is relevant and reliable. For example, inspecting original invoices is more appropriate evidence than relying solely on management's verbal assertions. 3.2. Two benefits the shareholder was referring to with regards to having the extra shares: Increased Voting Power and Control*: By acquiring additional shares, the shareholder's percentage ownership in the company would increase. This would give her greater influence over major company decisions, such as the election of directors, approval of significant transactions, and changes to the company's constitution, potentially allowing her to exert more control over the company's strategic direction. Higher Dividend Income*: Owning more shares directly translates to receiving a larger share of any dividends declared by the company. If the company is profitable and distributes earnings to shareholders, a higher number of shares would result in a greater total cash payout to the shareholder, increasing her return on investment. 3.3. Two suggestions on how the existing shareholders should deal with such a request: Review the Company's Memorandum of Incorporation (MOI) and Shareholder Agreements: The existing shareholders (or the board) should first examine the company's founding documents and any existing shareholder agreements to determine if the aggrieved shareholder had pre-emptive rights* (the right to be offered new shares before they are offered to external parties). If such rights were legally established and violated, the company would need to address this non-compliance. Engage in Dialogue and Seek a Fair Resolution*: The board of directors should initiate a formal discussion with the long-standing shareholder to understand her concerns fully and acknowledge her historical contribution. They could explore options such as offering her the opportunity to purchase shares from the market (if available), providing a commitment to offer her pre-emptive rights in future share issues, or offering a compensatory measure if a clear violation of rights occurred, to maintain good shareholder relations and avoid potential legal disputes.