Reference no: EM132746693
Question: Blue Pty Ltd (Blue) is a fuel retailer with eight service stations across metropolitan Adelaide. It is currently negotiating the purchase of twelve service stations from a competitor, the owner of which is about to retire. The new company will be named Blue and White Fuels Pty Ltd (BWF) and will be wholly owned by Rex Moroney (the current owner of Blue). It will have a staff of 200, turnover of $80m. and total assets of $50m. It will also have debt of $20m.
In order to be competitive in the fuel market, BTW will need to update its accounting software, and also its payroll and human resources systems to cope with the significant increase in its workforce and to ensure that it is operating efficiently.
Rex Moroney, had not bothered to have Blue's financial statements audited. He reasoned that he knew most of the staff personally, was very involved in day-to-day management of the firm, and had no debt. However, a management consultant that he contracted to facilitate the purchase of the twelve service stations and the establishment of BWF, suggested that the financial statements of the new company should be audited. Rex Moroney discussed this with his accountant, Jean Bell. Jean responded by saying that, in her view, if an assurance service was required, a review rather than an audit would suffice. Rex then asked the management consultant to provide her reasons suggesting that BWF's financial statements should be audited.
Required: Give four reasons that the management consultant could have provided to Rex to substantiate her suggestion for an audit. Ensure that you use the facts from the case to explain your answer.
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