Zzzz Best Case

1. Ernst & Whinney never issued an audit opinion on financial statements of ZZZZ Best but did issue a review report on the company’s quarterly statements for the three months ended July 31, 1986. How does a review differ from an audit, particularly in terms of the level of assurance implied by the auditor’s report? A review engagement is needed to obtain basis for providing what is known as limited assurance. This gives the client’s financial statements to be prepared properly with GAAP (Generally Accepted Accounting Principles). What happens next is you will have review report that looks legit, but will only provide unreliable assurance. In essence this will cause the auditor not find any evidence of mistreated material in the financial statements.
SAS No. 106 “Audit Evidence” identifies the principal “management assertions” that underlie a set of financial statements. The occurrence assertion was particularly critical in ZZZZ bests insurance restoration contracts. ZZZZ Bests auditors obtained a third party confirmations to support the contracts, reviewed available documentation, performed analytical procedures to evaluate the reasonableness of the revenues recorded on the contracts, and visited selected restoration sites. Comment on the limitations of the evidence that these procedures provide with regards to the management assertion of occurrence?
During an audit the auditor is responsible for “Audit Evidence” to identify assertions that may be present in the finacial statements of a company. There are multiple ways an auditor can obtain evidence such as an analytical review that will disclose the reasonableness of the revenue and other aspects of the financial statments. This information will help the auditor identify the level of risk. However, obtaining a knowledgeable third party confirmation would provide the auditor with a higher level of accuracy. In the case of ZZZZ Best’s the auditor was manipulated and mislead by the owner Barry Minkow as well as other employees who were accompliaces to the fraudulent acts. The evidence and documention obtained was falsified by the third party involved making it difficult for the auditor to recognize the fraud. The auditors in this case even insisted on inspecting a large
Not having authority to release certain details due to confidentially can hold back components of information. This information may have to be released for certain audit. Certain details may be important to an audit. Something in particular is being considered in the audit. Confidentiality agreements can change the outline of an audit. Factors of management consulting, visualized property visit, firsthand witnessing by owners, and other factors all play a role. Confidentiality is legally binding in agreement. Under penalty of law full disclosure of information is often impossible without say a court order. Limitations such as this on an audit could prove to be a disastrous. Following the legal perimeters of a confidentiality agreement would be better for anyone in the long run as they will not be liable for any breach of agreements. However, it should be noted that certain observations may in fact have other legal ramifications in the long run depending on the circumstances surrounding what is seen. Sticking to the letter of the law is vital at this point, but so is cooperation in legal matters outside of an audit ( or maybe a congressional hearing as we have