Question

Read the extract below and answer the questions that follow. [20 marks] Steinhoff Accounting Scandal The Steinhoff accounting scandal has raised concern on a number of levels, from the quality of corporate governance to checks and balances in the investment management business and even race relations in SA, writes Legalbrief. Two separate articles on The Conversation site explore the gaps exposed by Steinhoff’s fall from grace and also the lessons to be learnt from the debacle that threatens to wipe out billions of rand belonging to SA investors. Interviewed in the first piece, Jannie Rossouw, head of the School of Economic & Business Sciences at Wits University, notes: ‘The Steinhoff scandal is disturbing because it points to a serious gap in the checks and balances in the investment management space. A scandal of this magnitude should not have occurred if the systems with their multiple layers were working. This includes auditors, asset managers and non-executive directors who in their different roles should ensure that the company’s accounts are as close to the truth as possible.’ Rossouw asks why most fund and asset managers in SA and across the globe, which draw enormous fees, failed to pick up the alleged irregularities. He notes that every time a major scandal surfaces, regulatory gaps are identified and new measures are put in place to plug the apparent holes. But the scandals keep coming. He notes, however, that it’s impossible to regulate for integrity and ethical behaviour. ‘The one effective way that behaviour can be changed is through legal process and by means of tough punishment.’ The scandal would do SA a huge service if it made the point that corruption and mismanagement have nothing to do with race, Steven Friedman, professor of political studies at the University of Johannesburg, notes in a second article on The Conversation site. Friedman says it would also help if it alerted everyone in the marketplace to watch as carefully over private companies as they do over government MODULE BUSINESS AND SOCIETY TOTAL MARKS 20 MARKS departments. He writes: ‘But, given how entrenched racial attitudes are, it is more likely that it will be dismissed as a once-off freak by those who assume that white-led business is always competent and as further evidence of white prejudice by black people reacting to the label often stuck to them. If that happens, some private businesses will continue to get away with behaviour which would never be tolerated in government.’ Steinhoff’s woes continue to pile up. A Fin24 report says Steinhoff International Holdings, the group’s Amsterdam-registered parent company, announced last week in an investor update that more of its already-published financial results would need to be restated and could not be relied on. Steinhoff last month said that its 2017 audited results had been put on hold while PwC conducts an independent investigation into ‘accounting irregularities’. It has also previously warned investors to not rely on the figures contained in its 2016 results. Last week, it added the 2015 financial results of Steinhoff International Holdings Propriety Limited, the conglomerate’s former listed umbrella holding company, could not be relied on. The former Steinhoff CEO Markus Jooste left his mentor and business partner Christo Wiese on the hook for more than R200m is mentioned to a great detail in a Moneyweb report. It says the papers filed before the Western Cape High Court last month by Absa bank to have Jooste’s Mayfair Speculators liquidated reveal how he removed nearly all the assets from the company before leaving Wiese on the hook for more than R200m. The report notes that in December 2016, Mayfair, represented by Jooste’s son-in-law Stefan Potgieter, and Absa concluded a financing arrangement, which saw the bank providing Mayfair with an overdraft facility amounting to R335.6m and bank guarantees of a further R14.4m (in total R350m). Matter unravelled quickly following the upheaval on 6 December last year, when Jooste resigned as CEO. The Steinhoff share price collapsed, leaving Mayfair in breach of its loan agreement. Moneyweb says the court papers reveal that Upington Investment Holdings, Wiese’s investment vehicle for his share in Steinhoff, stood behind any and all Mayfair’s obligations up to R350m.

Source: (legalbrief.co.za/diary/legalbrief-forensic/story/steinhoff-scandal-raises-thorny.../pdf/date of accession July 30th 2019)

Question1
Does the Steinhoff case represent a failure in terms of Corporate Governance? Explain.

Question 2
Define Corporate Governance. Elaborate on the measures to prevent fraud in line with the Sarbanes-Oxley Act.

Question 3

Mention the recommendations for improving the system of setting compensation levels in
companies.

Answer 1

By in large we need to understand that the checks and balances functiions.Together the Board and the executives and stakeholdrs craetes coprorate governance system.Separation of power between the positions that facilitates internal checks and balances within the corporate governance system that enables corporations to extract unethical leaders and unlawful activities.So in the cas of Steinhoff that defies the complete failure of Corporate Governance in checks and balances.The quality of Corporate Governance in checks and balances complete dismantled and it leads the negative decisions which could lower the core value of company and make make it more difficult to meet its financial obligations.By the result here that Seinhoff threaten to wipe out billions of rand of millions of SA investors.Here complete system failure of auditors,asset managgers and non executive bodies and acounting irregularities.

In simple term Corprate Governance is the system by which regulated,directed and controlled.The prime theme of Corprate Governance is concerned with golding the balance between economic and soial goal and encourage efficient use of resources and equally to rquire to the stewardship of those resources.According to Sarbanes Oxley Act to check fraud in Corporate Governance taken several measures to prevent.its the Federal law called Public Company Accounting Reform and Invester Protection Act.The preventive measure taken by SOX that follows

*Establish safeguard to prevent data tampering by implementing ERP and GRC.

*Establish safeguard to estblish time line.

*Establish safeguard variable controls to track data access.

*Ensure that safeguards are operatinal and effectiveness of safeguard of periodic report.

*Detection of security breaches in all esgment.

*Disclosure of security breaches to SOX auditors.

So these are some preventive measures have taken.Apart from also some othe preventive majors like increase in diversity,appoint competent board members,ensure timely information,prioritize risk management,evaluate board performance.

Law does have responsibilities to set the compensation to enhance good governance practices in companies however there are other members share the burden,the institutional investors being equally responsible,must pull up their socs and cast informed votes while passing resolution to set the compensation.