Samar, Novah Mae B. Diansay, Yra Dessa T.

BSA-4

July 12, 2013

1. 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 Bests insurance restoration contracts. ZZZZ Bests 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. Upon the performance of those procedures, the auditors of ZZZZ Best Inc. had obtained evidence in order to draw reasonable conclusions on which to base the audit opinion. However, these evidences are subject to limitations due to factors not controlled by the auditors. First limitation of the evidence is its insufficiency to support the occurrence, reliability and relevance of events and transactions. Mere paperwork is not enough to prove an event to have existed. It also needs inquiries from people accountable in recording or recognizing such events. Moreover, theres a risk in being dependent on evidences provided by the management itself. Auditors should ask cooperation from the third parties in order to verify all records. Second limitation is the rules implemented by the client which prohibit auditors to further inspect or review the financial standing of the company. Some clients make some arrangements with the auditors as to how wide their scope in auditing would be. As a result, auditors fail to uncover misstatements or manipulations in the financial statements. Third limitation is the consideration of the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained. Theres a tradeoff between those two things that requires auditors to carefully evaluate them in order to get sufficient and reliable evidence. 2. In testimony of before Congress, George Greenspan reported that one method he used to audit the insurance restoration contracts was to verify

that his client actually received payment on those jobs. How such apparently reliable evidence lead an auditor to an improper conclusion? Greenspan had been lead to an improper conclusion because he did not investigate the authenticity of the apparently reliable evidence. He may have verified that his client actually received payment on those jobs but he had committed lapse on determining the activities of the company in which those payments were used. He had been misled by the information given by the subordinate of Barry who had confirmed such payments and insurance restoration contracts which were actually bogus. Due to extreme concealments of fraud, he had come up to an improper conclusion. 3. Ernst and Whinney never issued an audit opinion on financial statements of ZZZZ Best but did issue a review report on the companys 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 auditors report? Review of financial statements is one of the services being provided by auditors in which they are enabled to state whether anything has come to their attention that causes them to believe that the financial statements are not prepared in accordance with the financial reporting standard. Review of financial statements is only provided with limited evidence due to limited procedures allowed to be performed. It consists principally of inquiry and analytical procedures. As a result, this review engagement only provides moderate level of assurance that the information subject to review is free of material misstatements. On the other hand, in audit, a larger scope of procedures is performed, thus providing all possible evidence. Moreover, audit engagement allows the auditors to express an opinion as to the fairness of the financial statements, thus providing a high level or reasonable assurance.