The directors of Wheelcorp Pty Ltd. are Reg (also company Chair), Jo (also managing director), and Larry. Reg’s wife Rose used to work in an accounting office as a clerk when she was a student, and ten years ago she persuaded Reg that her old firm and her old boss, Addie, should be Wheelcorp Pty Ltd.’s auditor. So ever since then, every year Addie spends a week with his team at the offices of Wheelcorp. Rose doesn’t like to leave her six dogs home alone, so she has for several years been assisting with the Wheelcorp company books and records remotely from home, though (other than the long lunches she enjoyed with Addie) she can remember little of what she learnt in Addie’s office all those years ago. Jo, as a mechanical engineer, has always had a blind spot when it comes to understanding financial statements, so has always been happy just to pass on whatever information Rose gives him for the Board of Directors’ meeting and financial reports. Rose has, for the last two years, secretly been withdrawing small and varying amounts from the company’s bank account every day and paying them electronically into the account of ‘Rose’s Canine Retirement Home’. These withdrawals add up to thousands of dollars annually. A junior member of Addie’s team spots this and mentions it in confidence to Addie on the team’s most recent audit visit to the company office, but, other than write a general comment in his audit report noting that ’bank signatories should be reviewed from time to time in future’, he does not tell Jo or anyone else in the company about the withdrawals, so they continue to occur after the audit report is delivered to the board, which approves it without any of the board members reading it. Meanwhile, Wheelcorp’s fortunes have turned for the worse financially, mainly due to the announcement that government wants to tax users of biofuel-run vehicles to pay for roading costs. Rose is arrested after the junior audit team member (horrified that her boss hasn’t revealed the situation in his audit report) leaks the truth about Rose’s withdrawals to the press. The directors realise what a large financial hole these withdrawals have left, and Larry suggests that they are probably insolvent and, after trying unsuccessfully to persuade the board to call in an insolvency specialist, he resigns. The bank, which has lent money to assist with the financing of Wheelcorp’s conversion to biofuel vehicle manufacturing, and has taken security over its factory plant and equipment, is getting increasingly impatient as the company has defaulted on its loan instalments. The Bank has never registered any security interest. Among other creditors, Wheelcorp’s 100 employees are owed wages arrears. The good news is that Wheelcorp has won an international Greenovation award which has put its products and future planned products under the spotlight of publicity. Advise the board of Wheelcorp about the company’s position and options at this point, and advise also about the nature of any liability (including defences) for Rose, Jo, and Addie.

Answer rating: 100% (QA)

solution first of all reg did not make a wise decision when he hired addie as wheel corp ... View the full answer