How Audit Works: Case Study of ZZZZ Best Company

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Case 1.9 Zzzz Best Company

Case 1.9 ZZZZ Best Company, Inc.

1. A review is similar to an audit but is less in scope and only provides limited assurance in regards to the presentation of the financial statement. This differs with an audit that gives reasonable assurance that no material errors or illegal acts are detected. The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not involve obtaining an understanding of the internal control structure or assess control risk, tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation, and certain other procedures ordinarily performed during an audit. A review mostly involves inquires of client personnel and analytical procedures. In a review an accountant does not give an opinion as to the fair presentation of the financial statements, reasonable assurance. Instead the accountant states that no material modification came to his/her attention in order for the statements to be in conformity with generally accepted accounting principles, limited assurance.

2. As it relates to the assertion of occurrence and existence, third-party confirmations are usually highly reliable and auditors normally seek these out for a complete audit. While these forms of evidence can be reliable this isn’t always the case as such evidence can be direct or indirect. Direct third party confirmations are those that are mailed and received directly from the third party e.g. a bank confirmation or an account receivable confirmation mailed directly to the auditors. The indirect confirmation is less reliable since it passes through the clients’ hands e.g. a bank statement or an accounts receivables confirmation faxed to the client and forwarded to the auditors. Reviewing...
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