QUESTION Sotobe Inc. (Sotobe) was incorporated in May 2014 by three UNIZULU Alumni who

qualified as Chartered Accountants in 2013 and they are also registered with IRBA.

The main purpose of Sotobe is to provide the auditing services to public and private

companies. The staff compliment is 16. Sotobe has a small division that provides

consulting service with regard to financial accounting and tax. The reporting date for

Sotobe is 30 April.

Extract of the Pre- Adjustment Trial Balance as at 30 April 2021

R

Audit Fees 25 000 000

Consulting Fees 5 000 000

Salaries 10 000 000

Rent 1 000 000

A tender for the Audit Service was issued and advertised on the Sunday Times by

MKO (Pty) Ltd. Sotobe completed the tender documents and submitted within the

deadline. The appointment of Auditors had to be approved by the Audit Committee of

MKO (Pty) Ltd. Two names of the potential Auditors were submitted to the Audit

Committee meeting that was held on the 25 September 2020 and Sotobe was

approved. The Audit Committee of MKO (Pty) Ltd also approved that Sotobe may

provide a consulting service with a total value of not more than R250 000 per annum.

The audit fees must be paid after the audit service has been provided. The audit

service is expected to cost R1.1m.

On 26 September 2020, MKO (Pty) Ltd requested Sotobe consulting service division

to review its tax calculation before making the first provisional payment to SARS, the

agreed consulting fee was R90 000, payable within 30 days. The reporting date for

MKO (Pty) Ltd is 31 March. The Audit is planned to take place in May 2021 and June

2021, respectively. Sotobe audit team attended the MKO (Pty) Ltd Audit Committee

meeting that was held on the 27 April 2021 to present the audit plan. The budgeted

audit fee for attending the Audit Committee meeting is R20 000 per meeting and this

is included in the expected audit fees of R1.1m stated above.

The approval for the consulting service by the Audit Committee for Sotobe is only

required because Sotobe will be providing the audit service, otherwise, MKO (Pty)

Ltd’s Executive Management can follow the normal procurement (buying) process to

get the consulting service from any qualifying service provider.​