ZZZZ Best Company, Inc.: Case Study
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ZZZ Best Company, Inc.
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Case Study 2
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Due Date: March 30,2010
ZZZ 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?
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. Erns & 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. SAS No.106, "Audit Evidence," identifies the principal "management assertions" that underlie a set of financial statements. The occurrence assertion was particularly critical for ZZZZ Best's insurance restoration contracts. ZZZZ Best's auditors obtained third-party confirmations to support the contracts, reviewed available documentation, performed analytical
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ZZZ Best Company, Inc.
-------------------------------------------------
Case Study 2
-------------------------------------------------
Due Date: March 30,2010
ZZZ 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?
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. Erns & 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. SAS No.106, "Audit Evidence," identifies the principal "management assertions" that underlie a set of financial statements. The occurrence assertion was particularly critical for ZZZZ Best's insurance restoration contracts. ZZZZ Best's auditors obtained third-party confirmations to support the contracts, reviewed available documentation, performed analytical