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Zzzz Best Company Case Study

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Case # 6: 1.9 ZZZZ Best Company, Inc.
1. AS 5.14
AU 316.02-.04
Consideration of fraud in a financial statement.
Auditors have responsibility to perform the audit and check the authenticity of the financial statements. Auditor should take into account the risk of fraud in a financial statement from management improper assertions. However, in this case the audit company ignored to examine ZZZZ Best’s financial statements. ZZZZ Best report its earning as billings in excess of costs and forecast revenue on restoration contracts. These contracts do not exist nor do the revenues. Actually, the auditor can confirm the contracts information by direct contact the alleged insurance carriers or go to the site to check. However, the auditors did not do that.
2. AS 12.01-03 Identifying and Assessing Risks of Material Misstatement …show more content…

They should identify and evaluate the risks of material misstatement. In this case, the cost of the electric generators on the balance sheet is $1,970,000, while the real price less than $100,000. However, the company never use these generators. ZZZZ Best just use these generators to boost the assets on the balance sheet.

3. AS 8.04 Audit Risk
The audit risk is that the auditor expresses inadequate audit opinions for the material misstatement of financial statements. The financial statements are not consistent with the true situation. In this case, the auditors failed to find ZZZZ Best’s insurance restoration trades was false and the contracts were completely fictitious. Minkow used the fake insurance restoration contracts to book the profits and earnings. The amounts of the insurance restoration contracts were impractical large.

4. AS 15.4-9 Evaluating the Sufficiency and Appropriateness of Audit

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