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You are an Auditor at Rigs Limited for a group of companies that fall within a

consolidation. The Holding Company is Happy Limited $($Happy$),$ with a year ending

$31$ October $2023.$ Happy Limited is registered on the Johannesburg Stock Exchange

$($JSE$)$ and is VAT$-$registered with SARS. Final materiality was set at R$3500000.$

Background information

Happy is the parent company of two other companies that are both subsidiaries,

namely Flower $($Pty$)$ Ltd and Bees $($Pty$)$ Ltd$.$

Happy holds $80\%$ shares in Flowers $($Pty$)$ Ltd and $100\%$ shares in Bees $($Pty$)$ Ltd$.$

Happy Limited$$s subsidiaries have the same financial year end as Happy Limited on

$31$ October $2023.$

Happy is a clothing retail company with numerous retail stores across South Africa.

Happy Limited expanded its business to the United Kingdom in the current financial

year ending $31$ October $2023.$

Flowers $($Pty$)$ Ltd is a manufacturer of clothing and supplies the clothing to Happy at

a cost below market price. Flowers $($Pty$)$ Ltd supplies the manufactured clothing to

other retailers at a cost applicable to the market price. Flowers $($Pty$)$ Ltd receives raw

materials to manufacture the clothing from both local and foreign suppliers.

Bees $($Pty$)$ Ltd is a repair company that repairs equipment in manufacturing companies

and provides repair services for Flowers $($Pty$)$ Ltd and other manufacturing companies.

Retail stores in the Western Cape

There were heavy floods on $01$ October $2023$ in the Western Cape and Happy$$s retail

stores were affected by the floods. The flood caused damage to the inventory in the

retail stores in the amount of R$4250000.$ Management refused to write off the

inventory after the auditor advised that the inventory should be written off.

$9$ HAUD$332-1-$Jan$-$Jun$2024-$SA$1-$TA$-$V$3-08012024$

Financial assistance to Flowers $($Pty$)$ Ltd

Happy provided financial assistance to Flowers $($Pty$)$ Ltd after approval at the board

meeting but without a special resolution approved by the shareholders in order to

assist the company in buying back non$-$controlling shares held by the directors of

Flowers $($Pty$)$ Ltd$.$ Written notice was not provided to Happy Limited$$s shareholders.

Immediately after providing financial assistance, Happy does not satisfy the solvency

and liquidity test.

Ignite $($Pty$)$ Ltd

Ignite $($Pty$)$ Ltd has a $15\%$ interest in Happy but does not form part of the group of

consolidations. The $15\%$ interest is recorded as an investment in Happy$$s financial

statements below the non$-$current assets category.

Ignite $($Pty$)$ Ltd is controlled by Mr L Smith, the husband of Mrs S Smith, the Chief

Executive Director $($CEO$)$ of Happy.

Sustainability Report

Flower $($Pty$)$ Ltd manufactures clothing that creates environmental issues as follows:

$$ Water usage, energy consumption, and waste generation since there are water

shortages and load$-$shedding issues.

$$ Labour rights, including fair wages, working hours, and workplace safety.

$$ The environmental impact of its products throughout their lifecycle, from raw

materials to production, transportation, and disposal.

$$ Waste generation and emissions, especially regarding hazardous materials or

pollutants.

$$ Eco$-$friendly materials and processes are used.

$$ Compliance with all relevant environmental laws and regulations

$$ We provide community development projects, charitable contributions, and

partnerships with social organisations.

Due to this, Flower $($Pty$)$ Ltd wants the auditors to perform procedures to provide

assurance in the sustainable report.

REQUIRED

Discuss whether or not the financial assistance provided to Flowers $($Pty$)$

Ltd is a Reportable Irregularity

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