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ZZZZ Best Company, Inc
Transcript of ZZZZ Best Company, Inc
Audit Review VS Full Audit
• The accountant is not aware of any misstatements or material modifications that need to be made
• Limited assurance
• Auditor has no opinion on the financial statements, just looks them over
Barry Minkow- 16 years old 1982
Carpet cleaning business turned insurance restoration
Tom Padgett and Interstate Appraisal Services
Ernst & Whinney- elaborate scheme to convince them
1. Client imposed audit limitations
2. Limitations of audit evidence
3. Importance of auditor communication when one resigns & 8K filing
• Auditor obtains a high level of assurance
• Auditor can express an opinion about the accuracy and level of assurance
• Auditor tests internal controls and tests for misstatements and obtains and understanding of the entities internal control and fraud risk
Limitations of Audit Evidence
AU 326- Audit Evidence
Auditors Used Confirmation, Documentation, and Analytical Procedures
AU 326.08- Information from outside sources is better than from internal sources
Confirmations were made by Tom Padgett who was involved in the scheme.
Interstate Appraisal Services and Assured Property Management provided the Documentation
Was Involved in Fraud
Collusion amongst outside Parties Gives Evidence Limitations
The client receiving payment doesn't prove the existence of those contracts. No third party.
The contracts for ZZZZ Best were paid for on paper, but never really existed in the first place.
Company and customer could be conspiring together
SAS 99 has since been put into place to try to stop cases like ZZZZ Best from happening. Under SAS 99:
Surprise visits, oral or face to face communication to clients and suppliers in addition to the written confirmation from ZZZZ Best.
Communication with Predecessor Auditor
Necessary to obtain information about whether or not to accept an engagement.
Successor Auditor's Responsibility.
Receiving payment= Confirmation?
AS 5 States "The auditor can express an opinion on the company's internal control over financial reporting only if the auditor has been able to apply the procedures necessary in the circumstances. If there are restrictions on the scope of the engagement, the auditor should withdraw from the engagement or disclaim an opinion. A disclaimer of opinion states that the auditor does not express an opinion on the effectiveness of internal control over financial reporting
YES!!! Confidentiality agreement did improperly limit the scope of the audit
Withdraw from engagement OR Disclaim an opinion
Types of Information To Be Obtained
Information about the Integrity of Management
Disagreements about Accounting Principles
Communications to those charged with governance regarding fraud and illegal acts by the client
Communications to management regarding significant deficiencies in internal controls
Predecessors understanding of the reasons the auditor switch was made.
Audit Review VS Full Audit
Procedures for Review of Client's Pre-Audit, Post-Year-End Earnings Press Release
There are no procedures outlined in Professional Standards
Reviews of Press Release Not a Good Source For Investment Decision Information