Failure in the Auditing Process

Topics: Audit, Fraud, Financial audit Pages: 2 (759 words) Published: March 19, 2014
Give several examples from the case that support the problem and discuss AS 9 guidance related to the knowledge expected of the auditor.

It seems Mr. Gray did indeed attempt to verify some of the claims made by ZZZZ Best. However, his investigation was not nearly as deep as necessary or up to the standards currently in place in the auditing field. First and foremost he failed to develop a proper strategy regarding what matters were important to follow up with, which matters required additional documentation and evidence, and which matters were properly verified and confirmed to confirm existence. A proper audit requires that the claims of management are verified by the auditing team, and that the financial documents are unqualified. The first example of a failure in the auditing process was the scam pulled by ZZZZ Best regarding their insurance restoration contracts. Gray was sent to investigate a property that ZZZZ Best claimed was property they were currently renovating in Sacramento. While Gray saw the site with his own eyes, he didn't realize it was just an elaborate hoax to fool him. The building and site were made to appear owned by the company, while indeed they were not. Much effort was put into the fraud scheme to fool Gray and the auditing firm, and Gray failed both to see through the ploy and request additional documentation to verify their claims. He didn't ask to see any permits, check records for the insurance claim, or find it necessary to question anyone on site in depth. Gray failed to shed to light any evidence of the contrary that this was a legitimate insurance claim, and not fraud. Proper auditing standards make clear that obtaining sufficient evidence is only one part of the process but an in depth segment.

Also apparent is that Gray failed to have a proper understanding of the relationship between his auditing company, Ernst & Whinney and ZZZZ Best's officers. Minkow admittedly required that the two companies sign confidentially...
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