Reference no: EM132919989

Question - Pat and John Dosh are brothers who own and run a very popular stall selling fruit and vegetables in a busy city-centre location. They operate from 7.00am until 9.00pm Monday-Friday. The customer base has grown dramatically in the last five years with the opening of a number of large office blocks nearby. The Dosh brothers have also begun to be more adventurous by expanding the range of exotic, and more profitable, fruits and vegetables to cater for a more diverse ethnic population.

The business model is very simple. They buy from wholesalers and other outlets and sell to individual customers. All purchases and all sales are for cash. Rarely does a supplier issue an invoice. The brothers can see the quantity and quality of what they are buying. They do not see the need for unnecessary paperwork.

They employ only family members whom they feel they can trust completely to help on the stall. The working day is divided into two shifts of 7 hours. There is always one brother and one family member on the stall. The employees are paid in cash at the end of the week. The brothers pay in cash for all other expenses such as rent for the stall and fuel and repairs to the van.

Every Friday evening the brothers sell off at heavily discounted prices any remaining produce which will not be fit for consumption if left over the weekend. What is left unsold is either shared by the brothers for their own consumption or put in the waste bin.

The brothers divide the end-of-week cash balance between themselves after allowing for their estimate of the cost of new inventory on the following Monday. The only accounting record they keep is of the weekend cash balance before division and their estimate of the amount they need to keep in order to buy new inventory.

Their accounting and tax affairs have been handled by an old school friend, an unqualified accountant. Recently the tax authorities announced that they were planning to investigate a number of his clients, including the Dosh brothers. The accountant then fled overseas to an unknown location. The brothers now come to your firm of qualified accountants asking for you to audit their accounts for the current year and if possible the previous year too.

Required -

a) Outline the concerns you would have in accepting this engagement and explain to the Dosh brothers the difficulties of conducting an audit of their business.

b) Explain what other assurance services might be appropriate for a small business and the level of assurance provided by each.