You are the auditor of Tana Ltd, a Manufacturing concern, which has reported operating profits since inception. However, during the year ended 31 December 2008, Tana Ltd reported an operating loss of sh. 100milion. The authorized ordinary share capital of the company is sh. 200Milion.
Arising from the operating loss, the share price of the company on the stock exchange fell and number of investors took the opportunity to buy shares in Tana ltd, on the stock exchange. One of the investors Tigania Ltd acquired 4% of the ordinary shares of Tana Ltd.
Thereafter , Tigania .entered into an agreement to purchase 20% of the authorized ordinary share
capital of Tana Ltd . allotted to two shareholders of Tana Ltd. Who were also directors of the company.
The two directors were to retain 100 qualifying shares as required by the articles of association of Tana
ltd. On March 2009, a memorandum of understanding (MOU) was signed between Tana ltd. Under the
Terms of the MOU , two of the directors of Tigania Ltd would immediately join the board of directors of
Tana Ltd. The head office of Tana Ltd Would also be relocated to the offices of Tigania Ltd.
Tigania Ltd . Was to pay Sh. 80Million to Tana Ltd by 30 April 2009 as purchase consideration for
Additional 20% shares on 22 May 2009, the directors of Tana made the following pronouncements:
(1) The directors appointed from Tigania ltd to the board of Tana Ltd. had not obtained qualifying shares within the time required by the articles of Association of Tana Ltd.
(2) The two directors representing Tigania Ltd in the board of tana ltd ceased to be directors on 2 may 2009.
(3) The head office of Tana Ltd would move back to its former location.
(4) The bankers of Tigania Ltd had appointed a receiver , on 20 May 2009 in respect of a bank overdraft of Sh. 20 million
(5) Tigania Ltd owed Tana Ltd Sh. 30Million in respect of goods sold to the company
(6) There was an apparent misappropriation of cash belonging to Tana Ltd by Tigania Ltd amounting to sh. 60Million. The misappropriation was by fraudulent transaction involving the two directors of Tigania ltd who were in the board of Tana ltd.
The directors of Tana ltd have asked you to carry out an investigation to determine the following events and their legality:
(i) The acts and activities of the two directors representing Tigania Ltd in the board of Tana Ltd
(ii) The apparent misappropriation of cash belonging to tana ltd by Tigania
(iii) The possibility of use of monies belonging to Tana Ltd by Tigania Ltd to purchase shares in Tana ltd.
Required:
For each of the tasks assigned in (i), (ii), (iii) above , describe the work you would carry out and the investigation you would conduct , clearly identify the records you would examine and the personnel you would interview in the course of your investigation. (20marks)
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