CTA FT JULY CLASS PRACTISE QUESTION

Background and understanding the operating environment.

Discount Group (Private) Limited “Discount Group” is a retail group headquartered in Makoni
Chitungwiza. Chitungwiza is a town located about thirty kilometres to the Southeast of Harare.
Discount Group has three subsidiaries – Discount Food, Discount Furniture and Discount
Finance.

The founder of Discount Group, Takura Musvosve is regarded as a visionary who has a
reputation of “pushing the boundaries”. The first Discount Group store opened in 1993 when
Takura Musvosve purchased the Changamire Trading Store (established 1900) in Makoni
Chitungwiza. The Musvosve brothers, Tendai and Takudzwa assisted her with the purchase
and the three siblings agreed on a 60%;20%;20% shareholding with Takura holding the 60%.
The trio renovated the building and totally rejuvenated the supermarket, which they named
Discount Food. Takura managed the food enterprise with a focus on product availability, low
prices, and friendly customer service. Takura has always followed the principle “A satisfied
customer who has experienced friendly service and received value for money will always
return” – for this reason, staff recruitment, staff training and employee recognition was
considered the fulcrum for survival. Initially Tendai and Takudzwa assisted Takura on a part
time basis.

By 2000, Discount Food had developed a reputation as the food supermarket of choice in its
area and the business had become very profitable. The business had increased its cash
reserves because of cash sales and suppliers expected payment within thirty days. In 2001,
Tendai and Takudzwa joined the business full time, and the siblings began an expansion
programme, opening further stores in Mufakose, Glen View and Marlborough. The new stores
followed Takura’s formula to the letter and, in due course, over the period from 2001 to 2009
more supermarkets were opened with the company expanding to other regions beyond
Chitungwiza and Harare.

In 2008, the enterprise became Discount Group and purchased a chain of three furniture
stores in Harare from the liquidators of that company and Discount Furniture came into being.
The furniture stores were rebranded, and the group’s ethos was introduced. The furniture
stores focused on selling furniture and appliances. By 2011, the Discount Group had expanded
to many more stores around the country, most of them profitable except for the recently
opened stores which generally take a few years to reach profitability. The Discount Group

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strives to achieve space productivity and profit through effective space management and
continue to optimise the store portfolio by opening new stores and introducing innovative
store formats.

Subsidiaries

All subsidiaries are wholly owned by Discount Group.

Discount Food (Private) Limited

Discount Food prides itself on achieving a competitive edge by offering competitive prices and
a complete one-stop shopping experience. Discount Supermarket’s mission is to become the
shopping destination of choice for customers in the growing lower to medium sector of the
economy. The vision is to become a prominent innovative nationwide food business offering
a wide range of groceries, fresh produce, prepared foods, delicatessen and bakery products
and other fast moving consumer goods such as small domestic appliances, gifts, stationery,
and toys. Discount Food operates 36 retail branches in all major centres in Zimbabwe.

Discount Furniture (Private) Limited

Discount Furniture targets the low to medium sector of the economy and strives to provide
customers with complete home and appliance solutions through quality products at
affordable prices. Discount Furniture operates 39 retail furniture stores in Zimbabwe.

Discount Finance (Private) Limited

Refer to working paper: DG2001.

Review of operations

Discount Group is a young innovative retailer ideally positioned to take full advantage of the
potential increase in living standards in Zimbabwe. Despite the effects of the COVID-19
pandemic, fragile economic environment, the impact of load shedding and difficult consumer
conditions in Zimbabwe, the Discount Group continues to achieve value creation and
sustainable growth in the 2023 financial period.

The Food and Furniture segments continued to perform well. Whilst increases in turnover
were marginal, both segments were able to achieve increases in operating profits through

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improved margins and containment of operating costs. Full rentals have always been paid to
landlords on all the stores throughout the years and the average remaining lease term for
most of the stores is 10 years. The Food segment was the outstanding achiever in the group
with profits increasing by 49%. Given the greater impact of the COVID – 19 pandemics on the
furniture sector, the Furniture segment performed well to achieve profit growth of 12%.
Discount Group uses the Zimbabwean dollar (ZWL) as its functional and presentation currency.

Governance structure of Discount Group

Name Position Qualifications/Experience

Chairman of the Board, BA, LLB well established

Mr. James Machaya Independent Non-Executive businessman in

Director Mashonaland Central

Ms. Takura Musvosve Chief Executive Officer Founder

Mr. Tendai Musvosve Chief Financial Officer Founder, CA (Z)

Mr. Takudzwa Musvosve Chief Operations Officer Founder, BSc in

Mathematics

BA (Hons) (HR), MA
Ms. Busi Mlambo HR Director
(Industrial Psychology)

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 Retired former
senior Bishop of a
church which has a presence
in several towns, owns vast
tracts of land and
Independent Non-Executive
numerous businesses
ev John Mhandu Director and Chairman of the
in
Remuneration Committee
Mashonaland West. Prior
to retirement, he oversaw
the Church’s business
interests. Worked in
commerce before joining
the ministry.

Independent Non-Executive Retired former Director of

Mr. James Mugabe Director and Chairman of the Finance in the City of
Audit and Risk Committee.
Harare

Independent Non-Executive
Mr. Ben Watyoka B Com (Hons)
Director

Internal auditors

Discount Group has an internal audit division which consists of four members including the
chief audit executive. The internal audit manager completed her BCom in Internal Auditing at
renowned local University in 2022. The other two staff members are trainees in internal audit
and are still busy with their training contracts. The division is based at head office and its head
reports administratively and functionally to Ms Takura Musvosve.

As part of combined assurance, the board of directors instructed Katekwe and Maunzagona
Chartered Accountants “KMCA” to rely on the work that was performed by the internal
auditors during the 2023 financial year. As per the initial discussion with the chief audit
executive, it was apparent that the internal audit team was constrained, and samples sizes
were kept to a minimum to ensure that the work was completed on time. There was no quality
control system in place for the internal audit team. As part of the 2023 internal audit plan the
following sections were covered:

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 • Testing of controls around the revenue and expenses business cycle (only 5
supermarkets and 5 furniture shops were visited and tested)
• Testing of inventory management controls (inventory was counted on 31 March 2023
but at the central warehouse only).

Report by predecessor auditors

The previous auditors submitted a non-compliance report to the Zimbabwe Revenue Authority
“ZIMRA” on the Import Statutory Instruments. Discount Group imported some inventory
without a valid import licence resulting in less import charges being paid on the inventory.
Upon further inquiry and as part of risk assessment procedures, it came to light that Ms Busi
Mlambo a director of Discount Group facilitated the payment of less import duties and bribes
to ZIMRA representatives through her friend who holds an influential position at ZIMRA.

REQUIRED
Required Marks

Sub- Total

total

A Based on the section in the scenario “Internal auditors,” Discuss

considerations that need to take place before placing reliance on work of 7 7
internal audit.

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