SCENARIO-1

ZED plc, a Construction company underwent a major restructuringwith new management takeover. The old CFO Mr. John was terminatedafter the company found a lot of cash embezzlement and forgery workin accounts and invoice payments. Mr. John who was with the companyfor 15 years had the full authorization power in the company asmost of the transactions were routed through his personalaccount.

The new management was headed by Mr. Fahad. Mr. Fahad noticedthat the books and records for the last 8 months were incomplete,cheques to suppliers had got dishonored and the company could notkeep track of cash movement.

The new management now wants to get things right and bring inproper control measures. The first initiative taken was to updateits accounting records. ZED plc needs to get an immediate reviewdone by their auditor MARKERS & Co. as part of takeoverprocedure and to submit the audit report to the bank.

Question 1: - (based on Scenario 1) “One of the good managementprinciples is to have a sound Internal control system.” Comment onthe failures in internal control system in ZED plc. before takeoverand suggest areas of improvement in having a sound internal controlsystem. Page 5 of 6 Assignment /summer/2020

Question 2: -( based on Scenario 1) “Auditors should maintaintheir fundamental principles in all their audit work while dealingwith the client. “ Explain the principles and ethical conduct, thatMARKERS & CO should follow in this case, while doing the reviewwork of ZED plc.