ZZZZ Best Case Study: Understanding Audit and Review

1. There are numerous differences between performing a review and actual audit on the financial statements, but the major one is that the review does not contemplate obtaining an understanding of internal control structure. Also, a review does not assess control risk, tests of accounting records and responses to inquiries by obtaining corroborating evidence through inspection, observation or any other audit procedure. It can point out significant matters of the financial statements but does not provide assurance of their accuracy. The issue with ZZZZ Best case is that the auditors review was not sufficient enough to review any misstatements on the financial statements. Ernst & Whinney never questioned the internal control, reviewed contractual agreements or made comparison of the previous statements. If they had done any of the above, they would have revealed a glitch in the system. In addition, the review does not provide the assurance that an audit opinion would do on the financial statement.
2. Upon the performance of those procedures, the auditors of ZZZZ Best Inc. had obtained evidence in order to draw reasonable conclusions on which to base the audit opinion. However, these evidences are subject to limitations due to factors not controlled by the auditors. First limitation of the evidence is its insufficiency to support the occurrence, reliability and relevance of events and transactions. Mere paperwork is not enough to prove an event to have existed. It also needs inquiries from people accountable in recording or recognizing such events. Moreover, there’s a risk in being dependent on evidences provided by the management itself. Auditors should ask cooperation from the third parties in order to verify all records. Second limitation is the rules implemented by the client which prohibit auditors to further inspect or review the financial standing of the company. Some clients make some arrangements with the auditors as to how wide their scope in auditing