QUESTION 1 Vera decides to set up a business selling flowers. She gets up early in the morning, visits the market, and then sets up a stall by the side of the road. For the first year, all 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 flowers 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 sell 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 salary for her work. At the end of the first year of trading as a limited company, Peter receives a copy of the financial large as he had statements, Profits are lower than expected, so his dividend will not be a 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 a true reflection on the last year's trading, accounts. He doesn't know whether they give high as those Vera had predicted when he agreed to as the profits do not seem as particularly invest Required (3 Marks) Inde pendent examinahonof vecovd (i) What is Auditing? (5 Marks) (ii) How will Peter derive benefits from this audit assurance (12 Marks) (iii) Discuss the key elements of an audit engagement Total (20 marks) Page 1 QUESTION 1 Vera decides to set up a business selling flowers. She gets up early in the morning, visits the market, and then sets up a stall by the side of the road. For the first year, all 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 flowers 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 sell 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 salary for her work. At the end of the first year of trading as a limited company, Peter receives a copy of the financial large as he had statements, Profits are lower than expected, so his dividend will not be a 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 a true reflection on the last year's trading, accounts. He doesn't know whether they give high as those Vera had predicted when he agreed to as the profits do not seem as particularly invest Required (3 Marks) Inde pendent examinahonof vecovd (i) What is Auditing? (5 Marks) (ii) How will Peter derive benefits from this audit assurance (12 Marks) (iii) Discuss the key elements of an audit engagement Total (20 marks) Page 1