Knapp Case 1.9
1. Both a review and an audit are attestation services performed by a CPA, however an audit has a high level of assurance that comes with it, telling external users of financial statements that they are sound. A review should not be relied upon as heavily as an audit when making decisions about a company because a review does not require the same level of assurance. 2. The restoration sights that were visited by the auditors were determined beforehand, with the clients knowledge, allowing the client time to set up a ‘’sting operation’’ and essentially fake a restoration. The third party confirmations that supported the contracts were made by people who weren’t actually third parties because they were in on the entire scheme. 3. Reliable evidence such as receiving payments can lead an auditor to an improper conclusion because those people sending the payments could be in on the scheme. There could also be other various deceptions such as credit card fraud, identity theft, etc. 4. The purpose of predecessor-successor auditor communications is for the predecessor to alert the successor to any potential issues regarding the client that may have led to the break-up of the original relationship. The successor has the responsibility for initiating the communications. Information that should be obtained should include any potential reservations the preceding auditor has about the client that could be relevant to the successor effectively doing his job. 5. Yes, the confidentiality agreement improperly limited the scope of the audit because it did not allow Ernst & Whinney to thoroughly investigate the restoration sight. It effectively blocked Ernst & Whinney from authenticating the restoration sight, or discovering that the restoration sight was completely fake. Confidentiality concerns may be ok in the event of maintaining some sort of competitive advantage over competitors. The point at...
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