Question 6 Tools-R-Us plc is a tools rental company based in Manchester with branches in several cities throughout the UK. Although the company was set up only 10 years ago, they have been growing fast mainly through taking over small local tools rental businesses. Their current auditors, Roberts & Jones, is a two-partner small firm of certified accountants in Wembley. The directors of Tools-R-Us believe that their company has now outgrown the capabilities of their current auditors, and particularly since their plans are to have the company listed on the London Alternative Investment Market next year they need a larger auditing firm with more experience and resources. You are a partner in Ace Auditors, a medium sized firm of Certified Accountants and registered auditors with offices in Southampton, London, Birmingham & Manchester. The firm's annual fee income is around 10.85M with the Manchester office accounting for 1.49M of the firm's total fee income. Mr Singh, the finance director of Tools-R-Us plc has invited your firm to become their auditors. In addition to the statutory audit, he has expressed an interest in your firm to perform other review engagement in preparation for the Alternative Investment Market listing. However, he is curious to know what level of assurance would be gained from this non-statutory audit engagement, and how this differs to the assurance provided by an external audit. The directors of Tool-R-Us plc are also considering establishing an internal audit department in the next few months, and so Mr Singh has asked about the differences between internal audit and external audit and what impact, if any, establishing an internal audit department would have on future external audit assignments performed by your firm. It is anticipated that the total audit and non-audit fees for the coming year from of Tools-R-Us plc, should your firm accept the nomination, to be in the region of 815,000,000 with the audit fee accounting for 382,000 of it. Required: a) Briefly explain the steps you would take before accepting the nomination to become the external auditors of Tools-R-Us plc. (8 marks) b) Explain briefly why auditors should plan and perform their audit with a degree of professional scepticism. (4 marks) c) Explain the main differences between internal audit and external audit. (8 marks) d) Explain the extent to which your audit firm can rely on the internal audit work when carrying out the statutory audit, and the arrangements over control of the work and reporting of the internal audit staff 16.de
