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Overview of a Business Audit

            
             There is a big difference between a review and an actual audit on financial statements. But the biggest one is that the review does not take into observation an understanding of internal control structure. Moreover the reviews do not assess control risk, examines accounting records and responses to inquiries by obtaining evidence through observation, inspection, or any other audit procedure. It can bring out significant matters of the financial statements but cannot provide assurance of their accuracy. In the case with ZZZZ Best the review of auditors was not sufficient to find any misstatements on the financial records. Erns & Whinney never referred to the internal control, reviewed agreement of contracts or compared it to the previous statements. If they did all of that, they would detected problems and frauds in the ZZZZ Best company.
             Question 2.
             Auditors' collection of evidence is the primary source to determine whether management's assertions are valid. Since the insurance restoration contracts accounted for 90 percent of ZZZZ Best's reported profits, the auditors should look more throughout verification, and review of it. Auditors should examine contracts not only for their conclusiveness but also for their existence (SAS 106). This aspect of the limitation can be seen in the case when insurance claims adjuster ( and later co-conspirator) Tom Padgett confirmed the insurance contracts won by ZZZ Best. An auditor seeking third party confirmation would reasonably rely on the insurance company's confirmation. The auditors should have considered that the amounts of the restoration contracts were too large and checked with verified information with competing firms in the industry. This simple procedure would cause the auditors to seek more persuasive evidence to confirm management's occurrence and rights assertions in order to assess management's integrity. Moreover, Ernst & Whinney auditor Larry Gray inspected just one restoration site.


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