ZZZZ Best Case Study Answers

Case 1.9 ZZZZ Best Company, Inc
Name
Course
Instructor
Date
Questions
Ernst &Whinney never issued an audit on financial statements of ZZZZ Best but did issue report on the company’s quarterly statement for the three months ending July 1986. How does a review differ from audit particularly in terms of levels of assurance implied by the auditors’ report?
The audit review takes into account inquiry as well as the analytical procedures, and it is typically less than the scope of an audit, with the auditor asserting that they did not find any material modifications that ought to be made to the financial statements. The review provides limited assurance when the entities who require the financial statements. On the other hand, the audit provides reasonable basis for which to express opinion about the financial statements, while the review does not provide a basis for expressing opinion given that the auditor does not obtain understanding of the internal control system. Since the audit provides reasonable assurance that no illegal acts or material misstatements exist, the auditor relies on inspection conformation as well as observation to obtain sufficient evidence. The review relies on analytical procedures, enquiry and other review procedures depending on the auditor’s judgment. The review is also less reliable compared to the audit that is more robust.
The quarterly review report merely provides an assurance that the financial statements are prepared in accordance to GAAP standards providing a true and fair view. Since the auditor does not does not establish the strength of the internal control system or misstatements. The reviews are also less rigorous and since there is no report on the control risk, which means that Ernst and Whinney could not reliably assess whether the material misstatements world occur even with the relevant assertions. The review report may provide information indicating the likelihood of problems occurring, but it is not sufficient enough to provide accuracy of assurance. The auditors did not assess ZZZZ Best’s internal control system, and hence they missed on identifying fraudulent activities. Overall, the audit opinion gives the assurance on the accuracy of financial statements.
Essentially, an entity needs to understand the features that differentiate the review from an audit. As such, the limited assurance is the main characteristic of reviews where there is less assurance compared on the level of assurance required in audit. It is merely designed to facilitate decision making on the conclusion, while the audit focuses on obtaining evidence to show that the financial reports are not materially misstated. In the review the opinion is expressed negatively while the audit is expressed positively that they believe there is no material misstatement of the financial statements. Equally, the feedback for an audit is more detailed compared to a review since the audit is more thorough.
SAS No. 31, “Evidential matter,” identifies the five-management assertions that underlie a set of financial statements. The existence assertion was particularly critical for ZZZZ Best’s insurance restoration contracts. ZZZ Best’s auditors obtained th...