1). Mainbrace Ltd is a book publisher and retailer which trades online. The company was formed using...

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1). Mainbrace Ltd is a book publisher and retailer which trades online. The company was formed using a kit bought from a legal stationer, start-up capital was provided by the major shareholder. Bertie Bracewell’s father, another friend and co-owner Angela Main also provided some capital. Bertie’s father owns ten per cent of the company but doesn’t take part in any activities. When it was set-up Angela and Bertie didn’t want to get too tied up in paperwork so they put on the forms that Bertie’s father and Angela’s mother, who just signed the form because she was asked to, were the first directors. Since it started the company has done exceptionally well and, some 18 months after it started up it is now turning over approximately a million pounds per month, employs 60 people in three offices and has recently entered into a contract to buy a huge distribution warehouse valued at over £5m. The company has Angela and Bertie to run the business and make all the decisions between them, with occasional advice from the company accountant Ron Whistler. He produces monthly management accounts but the company has never had an audit and has never filed any accounts with the Registrar of Companies. Ron is getting a little concerned, particularly as he has just received an envelope from ‘Companies House’. He daren’t open it because he thinks it will be bad news.

Discuss:
(a) What provisions of the Companies Act are Bertie, Angela and Mainbrace not complying with?
(b) What should they do as a matter of urgency to correct the situation?

2). Cicero Ltd has now realized that it needs to improve its financial records and send some accounts to Companies House. So far it has managed with a series of spreadsheets devised by the company accountant, Eric Chopper, who is not a qualified accountant, which records incoming cash and cheques, payments and outstanding invoices. There are no ledgers and no double-entry system. Eric does, however, reconcile his bank spreadsheets with the bank statements each month. He claims that all the company needs to know to run the business is how much money is in the bank. The business consists of four small supermarkets and two clothes shops. The company has never prepared audited accounts, even though it has traded for three years. Inventory count sheets are thrown away as they are only rough counts. Discuss:

(c) What does Cicero Ltd need to do to rectify the situation?
(d) Who is responsible for ensuring this is properly dealt with?
(e) By improving the position of Cicero Ltd, what advantages will this bring?
(f) Why might Eric Chopper not be keen to rectify the position?

3). Both Mainbrace and Cicero have realized that things cannot go on as they are. They have approached audit firm Tickitt & Run who have agreed to act and are currently setting up a meeting with each company to explain the legal and audit situation.

Discuss:
(g) What will be the key points Tickitt & Run will have to explain about auditing standards?
(h) How will Financial Reporting Standards, broadly, affect these businesses?
(i) How would you go about explaining to entrepreneurial management the need for all auditing and accounting rules?

Please answer the questions in the UK Companies Act 2006