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1.9_zzz_best_company[1]

1.9_zzz_best_company[1] - Emilia Skupiewska-Drozd Acct 723...

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Emilia Skupiewska-Drozd Acct. 723 Prof. A. Dignam Case 1.9 ZZZZ Best Company, Inc Question 1. Audits are expensive. For small business, the cost of an audit will run into the thousands of dollar, for large corporations the cost may exceed a million dollars. The most common reason for a small business to incur the cost of an audit is the influence exerted by a bank that insists upon audited financial statements as a condition for granting a bank loan. Sometimes the cost of audit would exceed its benefit. The alternative is to retain a public accounting firm to perform other services such as review of financial statements. A review of financial statements by public accounting firm is substantially less in scope than an audit and is designed to provide limited assurance on the credibility of the statements. It stresses inquiries by the CPA and comparison of amounts in the statements to comparable financial and nonfinancial data. These comparisons, which are referred To us as analytical procedures, are useful in bringing to light possible misstatements of financial statements amounts. The distinctions between a review and an audit are as follows: Review: It gives limited assurance that the financial statements do not have any known errors of departures from GAAP. It generally base on analytical procedures and inquiries. It does not consider the client’s internal controls. Audit: It gives reasonable assurance that the financial statements are fairly presented in conformity with GAAP. (SAS100). Auditors are in charge to obtain an understanding of client’s internal control. Auditors should gather supporting evidence from the management records. Question 2. Third party confirmations should give consistent evidence in support of assertions made by management. Usually the truthfulness of the evidence depends on the relationship between the client and the third party. In accordance to AU326.25 “
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