Using physical evidence has a limitation because things may not always look as how they appear. Ernst & Whinney believed they were at one of ZZZZ Best’s restoration sites, but in fact Minkow had spent $4 million on a building. He did this to make it look like the building was one of his restoration sites, but in reality it was just a building he had bought for the sole purpose of duping the auditors.
As for analytical procedures performed, this can be a problem at times because sometimes there is a lack of comparability among companies and there can also be an inability to obtain current industry data. Question 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? Answer:
The verification that the client was actually receiving payment on certain jobs was just simply providing Greenspan with the evidence about the assertion of the payments. However this method does not necessarily show the completeness and valuation of the payments. The client could have been receiving payments but they may have not been made in full, not on time, and in some cases the payments could not have been made at all. If this information was known this could have lead the audit team to believe that something was not right and things were not as how Minkow did perceive them to be.
Question 4: What is the purpose of the predecessor-successor auditor communications? Which party, the predecessor or successor auditor, has the responsibility for initiating these communications? Briefly summarize the information that a successor auditor should obtain from the predecessor auditor. Answer: Case 1. 9 Page 1 of 2 http://www. termpaperwarehouse. com/print/Case-1-9/47187 02/11/2012 In most cases the successor auditor will attempt to communicate with the predecessor auditor before accepting an engagement with a client.
The predecessor auditor is a great source for information about a prospective client to the successor auditor. The successor is required under the AICPA AU 210 (PCAOB 315) to initiate communication with predecessor. Successor auditors should try to obtain information on the integrity of management, any disagreements with management over accounting, auditing, the predecessor auditor’s understanding about the reasons for change, and any communication to those charged with governors regarding fraud and non compliance with laws or regulations.