Read the extract below and answer the questions that follow. [20marks] Steinhoff Accounting Scandal The Steinhoff accountingscandal has raised concern on a number of levels, from the qualityof corporate governance to checks and balances in the investmentmanagement business and even race relations in SA, writesLegalbrief. Two separate articles on The Conversation site explorethe gaps exposed by Steinhoff’s fall from grace and also thelessons to be learnt from the debacle that threatens to wipe outbillions of rand belonging to SA investors. Interviewed in thefirst piece, Jannie Rossouw, head of the School of Economic &Business Sciences at Wits University, notes: ‘The Steinhoff scandalis disturbing because it points to a serious gap in the checks andbalances in the investment management space. A scandal of thismagnitude should not have occurred if the systems with theirmultiple layers were working. This includes auditors, assetmanagers and non-executive directors who in their different rolesshould ensure that the company’s accounts are as close to the truthas possible.’ Rossouw asks why most fund and asset managers in SAand across the globe, which draw enormous fees, failed to pick upthe alleged irregularities. He notes that every time a majorscandal surfaces, regulatory gaps are identified and new measuresare put in place to plug the apparent holes. But the scandals keepcoming. He notes, however, that it’s impossible to regulate forintegrity and ethical behaviour. ‘The one effective way thatbehaviour can be changed is through legal process and by means oftough punishment.’ The scandal would do SA a huge service if itmade the point that corruption and mismanagement have nothing to dowith race, Steven Friedman, professor of political studies at theUniversity of Johannesburg, notes in a second article on TheConversation site. Friedman says it would also help if it alertedeveryone in the marketplace to watch as carefully over privatecompanies as they do over government MODULE BUSINESS AND SOCIETYTOTAL MARKS 20 MARKS departments. He writes: ‘But, given howentrenched racial attitudes are, it is more likely that it will bedismissed as a once-off freak by those who assume that white-ledbusiness is always competent and as further evidence of whiteprejudice by black people reacting to the label often stuck tothem. If that happens, some private businesses will continue to getaway with behaviour which would never be tolerated in government.’Steinhoff’s woes continue to pile up. A Fin24 report says SteinhoffInternational Holdings, the group’s Amsterdam-registered parentcompany, announced last week in an investor update that more of itsalready-published financial results would need to be restated andcould not be relied on. Steinhoff last month said that its 2017audited results had been put on hold while PwC conducts anindependent investigation into ‘accounting irregularities’. It hasalso previously warned investors to not rely on the figurescontained in its 2016 results. Last week, it added the 2015financial results of Steinhoff International Holdings ProprietyLimited, the conglomerate’s former listed umbrella holding company,could not be relied on. The former Steinhoff CEO Markus Jooste lefthis mentor and business partner Christo Wiese on the hook for morethan R200m is mentioned to a great detail in a Moneyweb report. Itsays the papers filed before the Western Cape High Court last monthby Absa bank to have Jooste’s Mayfair Speculators liquidated revealhow he removed nearly all the assets from the company beforeleaving Wiese on the hook for more than R200m. The report notesthat in December 2016, Mayfair, represented by Jooste’s son-in-lawStefan Potgieter, and Absa concluded a financing arrangement, whichsaw the bank providing Mayfair with an overdraft facility amountingto R335.6m and bank guarantees of a further R14.4m (in totalR350m). Matter unravelled quickly following the upheaval on 6December last year, when Jooste resigned as CEO. The Steinhoffshare price collapsed, leaving Mayfair in breach of its loanagreement. Moneyweb says the court papers reveal that UpingtonInvestment Holdings, Wiese’s investment vehicle for his share inSteinhoff, stood behind any and all Mayfair’s obligations up toR350m.

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

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

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

Question 3

Mention the recommendations for improving the system of settingcompensation levels in
companies.