Auditing and Assurance Service Assignment for Finance Students

This assignment solution addresses key aspects of auditing and assurance services, focusing on the application of the Companies Act and financial reporting standards to real-world business scenarios. The solution analyzes a case study involving a company's non-compliance with the Companies Act, detailing the actions needed to rectify the situation and the advantages of doing so. It explores the responsibilities of auditors, the impact of financial reporting standards, and the importance of ethical considerations in accounting. The document also explains how to communicate the need for auditing and accounting rules to entrepreneurial management, highlighting the role of external auditors in detecting errors and fraud. Overall, the assignment offers a comprehensive understanding of auditing principles, financial reporting, and ethical conduct within the context of business operations.

Running head: AUDITING AND ASSURANCE SERVICE
Auditing and Assurance Service
Name of the Student
Name of the University
Author’s Note

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Question 1
(a) What provisions of the Companies Act are Bertie, Angela and Mainbrace
not complying with?
Bertie and Angela do not have the decision-making power as they are not the
directors. As per Companies Act 2006 Statement of Proposed Officers, a statement
containing the name of the first directors needs to be provided to the shareholders
along with statement to the memorandum of association that includes the details of
the relevant capacities of the directors. Companies Act 2006 The General Duties
puts certain obligation on the directors such as doing something for organizational
wealth creation, providing indecent decision, acting with trust by avoiding conflict of
interest, proper exercise of skills, do not accepting third party associated benefits,
care and due diligence and others. As per Companies Act 2006, Section 10, it is
required to include a Statement of Capital where initial shareholders have the
obligation of specifying their capital contribution for gaining the rights for correctly
accessing the shares; and this section needs to be complied with by Bertie’s father,
Angela’s mother and their friends in case they hold majority of shares.
Mainbrace Ltd is not immune from audit as it has turnover around £12 million
and this puts the statutory obligation on the directors of appointing external auditors
for providing true and fair view on the company’s financial reports for enhancing the
decision making process. It also requires the financial management accountant to be
a certified chartered accountant for adhering to the Accounting Standards. Apart
from these, accounts need to be filled by Angela and Bertie as the directors with the
intention to report the company’s situation to the shareholders. Unethical conduct
can also be seen by Ron as the obligation is to open any envelop from Companies
House on immediate basis.
(b) What should they do as a matter of urgency to correct the situation?
The Statement of Proposed Officers should be taken into account by
Mainbrace Ltd’s shareholders for ensuring the general duties of directors are
complied with by Angela and Bertie for company’s success. Financial statements of
the company needs to be presented to the shareholders for informing them about the
company’s financial performance and position. For the detection of any error or fraud
along with conflict of interest, external auditors must be appointed by Angel and

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Bertie. There must be not be approval of accounts by both of them unless profit or
loss, assets and liabilities and financial position provide true and fair value. In line
with The International Code of Ethics for Professional Accountants, annual accounts
needs to be filled with the register by Mainbrace Ltd’s directors in the presence of a
professional and specialised accountant.
Question 2
(c) What does Cicero Ltd need to do to rectify the situation?
Preparation of annual reports is a statutory requirement which needs to be
take into account by Cicero Ltd; and this indicates towards the need to hire a
qualified professional accountant. As per The International Code of Ethics for
Professional Accountants, five principles that are objectivity, integrity, confidentiality,
professional competence and due care and professional behaviour need to be
followed by the professional accountants. Companies Act 2006 Duty to keep
accounting records puts the obligations on the companies to maintain sufficient
accounting records for demonstrating their financial performance and financial
position; and the same act needs to be followed while preparing the financial
accounts.
Companies Act 2006 Accounts to give true and fair view puts the obligation on
the directors to ensure that the approved accounts provide true and fair view of the
company’s financial performance and financial position. By throwing away the count
sheets of inventory, Eric Chopper has failed to adhere to the required framework of
accounting. Public companies are required to keep any accounting records in the
registered office for six years and limited companies are for three years from the
date of their development; and it is mentioned in Company Act 2006 Where and for
how long the records to be kept. There is also a statutory requirement for Cicero Ltd
to maintain appoint an external auditor for forming onion on the trueness and
fairness of its financial statements to the shareholders.
(d) Who is responsible for ensuring this is properly dealt with?
Companies Act 2006 Scope and nature of general duties needs to be
maintained by the director for effectively managing the company; this includes seven
stages of legal obligations that need to be maintained by the director. Moreover,
filling the reports and accounts to the registrar on yearly basis by complying with

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Companies Act 2006 Scope and nature of general duties needs to be ensued by the
director.
(e) By improving the position of Cicero Ltd, what advantages will this bring?
Required accounting standards and legal requirements need to be considered
by Cicero Ltd for improving its position as this ensures avoiding conflict of interest
between the shareholders and directors. Presence of an external auditors will ensure
obtaining true and fair view of the financial accounts while ensuring compliance of
the company with required legislations and accounting standards. Moreover, this
ensures conveying true and fair view of the company’s financial performance and
position. It will make the directors able in safeguarding the company from any losses.
(f) Why might Eric Chopper not be keen to rectify the position?
Eric Chopper has not have the required experience to be the accountant of a
company as he is not a qualified accountant; and this does not permit him to adhere
to the requirements of conceptual framework and legislation. This is needed for him
to be a member of a professional accounting body while complying with the
standards and ethical requirements for improving Cicero Ltd’s position.
Question 3
(g) What will be the key points Tickitt & Run will have to explain about auditing
standards?
It will be required for Tickitt & Run to explain an independent external auditor’s
responsibilities and objectives at the time to conduct audit as per ISA 200 Scope of
the ISA for determining the true and fair view of the financial statements. Three
requirements are mentioned in ISA 300 Preliminary Engagement Activities that the
auditors needs to undertake at the commencement of audit engagement; they are
fulfilling the requirements of ISA 220 for engaging with the client, complying with the
rules in the areas of independence and regulatory obligations, and development of
the terms of engagement. General audit strategy needs to be developed by the
auditor that consists of audit processes, time, nature and extent of required
resources for carrying out the audit. Documentation of the audit plan is another
crucial aspect that the auditor needs to undertake. Lastly, the auditor needs to send
an engagement letter to the client describing the terms of audit engagement along
with the processes of responding to any key changes.

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(h) How will Financial Reporting Standards, broadly, affect these businesses?
Providing the necessary information on a company’s financial performance
and financial position so that the users can make effective decisions is the objective
of financial statements as per IASB Conceptual Framework for Financial Reporting.
The common requirements of financial statements along with their structures are
stated in IAS1 Presentation of Financial Statements. Appropriate ethical standards
have not been followed by Mainbrace Ltd and Cicero Ltd and financial statements
were not fairly presented in these companies by complying with IAS 1. For example,
access of the financial statements as well as information needs to be provided to the
shareholders so that they can assess the company profitability along with the
performance of the managers. Information on the financial standings of the
companies are required by the management for making effective decisions.
Financial statements help in ascertaining whether a company is profitable or
not. Banks also ensure whether the company will be able to make interest payment
and loan repayment in case it applies for a loan. Investors assess the feasibility of
the financial statements in order to make decision associated with investments. It is
highly required for both Mainbrace Ltd and Cicero Ltd to adhere to the ethical
standards in order to assure true and fair presentation of the financial statements.
This will ensure reflecting all crucial information in the financial statements on the
company’s financial performance and financial position so that effective decisions
can be made.
(i) How would you go about explaining to entrepreneurial management the
need for all auditing and accounting rules?
The absence of accounting and auditing rules would able the business
organizations in managing the financial information in the way that is suitable to them
only. These rules have been developed for controlling the firms so that these rules
are followed for maintain the interest of all key stakeholders in the same track.
Compliance with the International Code of Ethics for Professional Accountants puts
the obligations on the companies to maintain an ethical behaviour. The presence of
external auditors helps in identifying the errors and frauds in the financial statements.
Compliance with the auditing rules and regulations helps in forming an opinion on
whether there is any material misstatements in the financial statements and whether

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the financial statements have been presented in true and fair manner so that
effective decisions can be made.