Wren, Gibbs and Angelo are brothers who own 75 per cent of a firm of builders with
Question:
Wren, Gibbs and Angelo are brothers who own 75 per cent of a firm of builders with a turnover of £7m, specialising in house alteration and improvement. The remaining 25 per cent of the business is owned by their sister Bertha who lives abroad and only comes over once a year. The books have been kept by Wren who has an HNC in Business Studies as well as in building and Wren has also prepared the account.
The company is profitable, and the account has been filed regularly at Companies House. Although they have never had a proper audit, the accounts by Wren are reviewed by their financial advisor, Gibbson, a golfing friend of Angelo’s who prepares and submit the tax computation. Gibbson does not give any form of opinion on the account.
The brother now wants to borrow a lot of money from the banks to acquire another local building company which is in financial difficulties. Bertha has also been told that the brothers seem to have a very affluent lifestyle, but she only receives a very small dividend each year.
DISCUSSION
- What benefits would the company get from employing an independent auditor?
- Where would they find a suitable auditor?
- Would it benefits Bertha to insist on a proper audit?
Intermediate Financial Management
ISBN: 978-1285850030
12th edition
Authors: Eugene F. Brigham, Phillip R. Daves