Winfred Metal Reclamation Ltd, a small company, buys scrap metal residues from local companies and treats the residues to recover the metal which is then sold to other local companies.

The company is 75 per cent owned equally by Joe Winfred and his brother Eric, with their mother owning the remaining 25 per cent. The directors are Joe and Fred. The bank has advanced the company £0.5m for anew smelter.

Some purchases are made from itinerant scrap merchants. No evidence is available for the purchase of this scrap which totalled £160 000 in the year ending 30 November 2X10. However, there is no evidence that it is incorrect and Joe is willing to give a letter of representation containing the usual assurances re completeness and validity. The auditors find all other matters to be satisfactory and records are reasonable.

Office staff consists of Mary and Susan, who deal with all accounting matters including wages between them. There is no formal split of responsibilities, they just do what needs doing when it needs doing. Mary is living with Fred.

Some figures in the year ending 30.11.2X10 are:

Questions:

(a) Is it possible for this company to dispense with an audit? Is this a good idea?

(b) Can the company file abbreviated accounts? What should the auditor do if they do?

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Purchases Net profit Balance sheet total Employees 3176000 124 000 981.000 9