CPA Standards & Practices Case Study

Pages: 3 (1499 words)  ·  Bibliography Sources: 1  ·  File: .docx  ·  Level: College Senior  ·  Topic: Accounting

ZZZZ Best Company

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?

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The difference is fairly substantial. There are several "levels of service" when it comes to what a Certified Public Accountant (CPA) can do for their clients. Two of those levels of service are "Review" and "Audit." They are similar but the "Audit" level is much more substantial because the required level of due diligence is off the charts compared to a review setup. As explained by the case study, Ernst and Whinney was to have completed a review for a quarter as well as a full-on audit for an entire year. The former happened but the latter never did. This is significant because it help saved Ernst & Whinney's reputation later on. Indeed, there was a bank that was going after Minkow for the falsified figures and they also went after Ernst and Whinney for supposedly being an accomplice, either negligently or on purpose. The reason Ernst and Whinney got off the hook is because the bank cited the review and not an actual audit document. Indeed, and as noted above, the audit did not occur. One of the caveats and clauses in "Review" documents is that they CANNOT be relied upon as being asserted to be factual by the auditing firm. Indeed, if the information in the file turns out to be specious (which is what happened), the company that duped its investors and financial partners can be held liable but the accounting firm or person that did the review document cannot be held liable. As such, Ernst and Whinney was vindicated in court as it related to liability for not catching the fraud or admitting that the statements were knowingly fictitious. Indeed, that is the entire reason why Ernst and Whinney dropped Minkow and ZZZZ Best as a client as they found clear red flags and evidence of malfeasance.

Case Study on CPA Standards & Practices Assignment

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 procedures to evaluate the reasonableness of the revenues recorded on the contracts, and visited selected restoration sites. Comment on the limitations of the evidence that these procedures provide with regard to the management assertion of occurrence

The main limitation on the evidence would simply be that a lot of the "evidence" that ZZZZ Best provided was completely contrived. Even in cases where physical and in-person inspections were done, people were either duped or they were in on the con. To put things lightly, it would be imperative for any firm that is investing ZZZZ Best or any other company like it to rely on third party evidence and evidence that can be independently verified and proven. Beyond that, anyone investigating a firm like ZZZZ Best should rely on a full audit-level report rather any press releases or "review" documents. The former are intentionally crafted to paint things positively (assuming they are true at all to begin with) and the latter is not something that could or should be relied upon because the accounting firm doing the review may very well believe their assessment is accurate, they are not held to prove it or suffer the consequences if they happen to be wrong. As noted in the case study, the insistence that the interested third parties were not allowed to visit other sites and/or sites of their choosing in general should have been a huge red flag to anyone ... CPA or not. No company that is honest and transparent (and public companies have to be that way as a matter of rule and law) should be making such a request or demand unless there is a very good reason why. Very limited examples where it might fly is if there are national security or security clearance issues involved.

3) In testimony before Congress, George Greenspan reported that one means he used to audit the insurance restoration contracts was to verify that his client actually received payment on those jobs. How can such apparently reliable evidence lead an auditor to an improper conclusion?

To put it concisely,… [END OF PREVIEW] . . . READ MORE

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How to Cite "CPA Standards & Practices" Case Study in a Bibliography:

APA Style

CPA Standards & Practices.  (2015, September 16).  Retrieved September 26, 2020, from

MLA Format

"CPA Standards & Practices."  16 September 2015.  Web.  26 September 2020. <>.

Chicago Style

"CPA Standards & Practices."  September 16, 2015.  Accessed September 26, 2020.