Vera decides to set up a business seliog tovers, She gets up early in the moming. Viits ne market, and then sets up a stall by the side of the road. For the frst year. al goes well. She sells all the flowers she is able to buy and she derives some income from the business However, Vera feels that she could sell more fiowers if she was able to transport more to the place where she sells them, and she also knows that there are several other roads nearby where she could sell flowers, if she could be in two places at once. She could achieve these two things by buying a van and by employing other people to sel flowers in other locations Vera needs more money to achieve this expansion of her business. She decides to ask her rich friend Peter to invest in the business. Peter can see the potential of Vera's business and wants to invest, but he doesn't want to be involved in the management of the business. He also does not want to have ultimate liability for the debts of the business if it fails. He therefore suggests that they set up a limited company. He will own the majority of the shares and be entitled to dividends. Vera will be managing director and be paid a salary for her work. At the end of the first year of trading as a limited company, Peter receives a copy of the financial statements. Profits are lower than expected, so his dividend will not be a large as he had hoped. He knows that Vera is paid a salary so does not care as much as him that profits are low. Peter is concerned by the level of profits and feels that he wants further assurance on the accounts. He doesn't know whether they give a true reflection on the last year's trading particularly as the profits do not seem as high as those Vera had predicted when he agreed to invest. O What is Auditing? - Inde pendent examinahonof vecovd (i) How will Peter derive benefits from this audit assurance Required (ii) Discuss the key elements of an audit engagement
Vera decides to set up a business seliog tovers, She gets up early in the moming. Viits ne market, and then sets up a stall by the side of the road. For the frst year. al goes well. She sells all the flowers she is able to buy and she derives some income from the business However, Vera feels that she could sell more fiowers if she was able to transport more to the place where she sells them, and she also knows that there are several other roads nearby where she could sell flowers, if she could be in two places at once. She could achieve these two things by buying a van and by employing other people to sel flowers in other locations Vera needs more money to achieve this expansion of her business. She decides to ask her rich friend Peter to invest in the business. Peter can see the potential of Vera's business and wants to invest, but he doesn't want to be involved in the management of the business. He also does not want to have ultimate liability for the debts of the business if it fails. He therefore suggests that they set up a limited company. He will own the majority of the shares and be entitled to dividends. Vera will be managing director and be paid a salary for her work. At the end of the first year of trading as a limited company, Peter receives a copy of the financial statements. Profits are lower than expected, so his dividend will not be a large as he had hoped. He knows that Vera is paid a salary so does not care as much as him that profits are low. Peter is concerned by the level of profits and feels that he wants further assurance on the accounts. He doesn't know whether they give a true reflection on the last year's trading particularly as the profits do not seem as high as those Vera had predicted when he agreed to invest. O What is Auditing? - Inde pendent examinahonof vecovd (i) How will Peter derive benefits from this audit assurance Required (ii) Discuss the key elements of an audit engagement
Chapter9: Deductions: Employee And Self- Employed-related Expenses
Section: Chapter Questions
Problem 49P
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Transcribed Image Text:Vera decides to set up a business seliog tovers, She gets up early in the moming. Viits ne
market, and then sets up a stall by the side of the road. For the frst year. al goes well. She
sells all the flowers she is able to buy and she derives some income from the business
However, Vera feels that she could sell more fiowers if she was able to transport more to the
place where she sells them, and she also knows that there are several other roads nearby
where she could sell flowers, if she could be in two places at once. She could achieve these
two things by buying a van and by employing other people to sel flowers in other locations
Vera needs more money to achieve this expansion of her business. She decides to ask her
rich friend Peter to invest in the business. Peter can see the potential of Vera's business and
wants to invest, but he doesn't want to be involved in the management of the business. He
also does not want to have ultimate liability for the debts of the business if it fails. He therefore
suggests that they set up a limited company. He will own the majority of the shares and be
entitled to dividends. Vera will be managing director and be paid a salary for her work. At the
end of the first year of trading as a limited company, Peter receives a copy of the financial
statements. Profits are lower than expected, so his dividend will not be a large as he had
hoped. He knows that Vera is paid a salary so does not care as much as him that profits are
low. Peter is concerned by the level of profits and feels that he wants further assurance on the
accounts. He doesn't know whether they give a true reflection on the last year's trading
particularly as the profits do not seem as high as those Vera had predicted when he agreed to
invest.
O What is Auditing? - Inde pendent examinahonof vecovd
(i) How will Peter derive benefits from this audit assurance
Required
(ii) Discuss the key elements of an audit engagement
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