Auditing Paper, ZZZZ Best Company

1)An introduction covering the background information of the case (1-

2 paragraphs).

(2) Key issues of the case (about two pages).  Here you would identify and discuss the various accounting fraudulent activities that occurred at ZZZZ Best Company, Inc.  I would like you to discuss why ZZZZ Best’s auditors were unable to prevent them from engaging in fraudulent activities. From an auditing standpoint, what audit procedures should Ernst and  Whinney  have  conducted  to  detect  the  fraudulent  accounting  by  ZZZZ  Best’s  management?  One

way  you  can  approach  this  analysis  is  to  identify  the  fraudulent  accounting  actions  that  occurred  at  ZZZZ  Best,  and  discuss  the  audit  procedures  that  should  have  been  followed  to  detect  the  fraud.  You  will  find  some  discussion  of  the  omitted  audit  procedures  in  the  case.  However,  you  should  provide  additional  insights  based  on  our  class  discussions  and  from  other  sources  such  as  your  textbook  and  auditing standards.

(3) Conclusion (1-2 paragraphs) Include  a  cover  page  with  your  name  on  it.  The  report  should  not  exceed  three  pages(double-spaced  with  sufficient  margins), excluding the  cover  page.

It  should  be  formatted  using  Times  New Roman 12-point font.

Your name should appear on the cover page only

Case Analysis of ZZZZ Company

Auditing Paper ZZZZ Company


Barry Minkow founded ZZZZ Best as a carpet-cleaning and restoration firm that acted as a Ponzi scheme. After the company declaring that it would go public in December 1986, many questions were raised regarding its value and source of revenue. The public aspect of ZZZZ Best made its value to reach over $300 million. In less than seven months into its IPO, the company file for bankruptcy, and the process saw auctioning off its assets at about $ 64,000 (Knapp, 2010). Minkow had started the company in his parent’s garage while in high school. The beginning of the company occurred when he was 15 years old. At first, the company had several complaints from the customers. It also experienced many supplier collection requests.

The above factor resulted in losses. However, Minkow wanted to make his company profitable, and this made him create a profitable illusion for credibility. The move influenced criminal acts. Among them included fraud, theft, check kiting, and insurance scams (Knapp, 2010). The criminal acts supported payments made to suppliers and operations. The situation led to the establishment of a fictitious insurance company and appraisal businesses. It became one of the most massive credit card schemes that reached close to $ 70,000 in fraudulent charges. Comment by Microsoft Office 用户: Incomplete sentence Comment by Microsoft Office 用户: Minkow engaged in more than just credit card schemes.

Key Issues regarding the Case

Minkow and Tom Padgett (Business associate) established a fictitious company. The primary purpose of the business was to defraud banks and other financial institutions. The company forged several documents that credited ZZZZ Best for tremendous restoration work. They also used Interstate Appraisal Services to verify their claims. Fraudulent financial statements that Minkow produced ensured that bankers and investors established an interest in the company. The situation influenced the continuation of a Ponzi scheme. The company experienced problems in its cash flow and had to purchase KeyServ for $ 25 million to conclude the Ponzi scheme. However, the deal broke down when KeyServ developed a campaign against ZZZZ Best Company, which declined the company’s stock price sharply. The era facilitated the commencement of several investigations and lenders began to call their loans. Comment by Microsoft Office 用户: This acquisition was not mentioned in the case.

Minkow had misled several accountants and financial experts with his Ponzi scheme that contained detailed financial statements and believable ghost projects. This made the company to launch an IPO through the Securities and Exchange Commission (SEC). ZZZZ Best Company had to compile a prospectus with audited financial statements. Opinions had to come from its accounting firms Ernst and Whinney to avoid existing material misstatement (Knapp, 2010). The involved CPAs were exposed to false appraisal documents in the performance of its audit. Minkow and associates had to rent a building and establish a bogus job site for customers to fake a real refurbishing customer site for the CPA FIRM. Comment by Microsoft Office 用户: Ernst and Young didn’t exist at the time of this case.

Minkow could have made a clear path of planning for his company, and this would have enabled his firm to grow to the direction he wanted. Sometimes, it becomes significant to avoid short cuts in business. At a tender age, he would have started by learning about the environment and how it influenced business growth. He would have gone miles to even acquire knowledge about restoration insurance and other business development initiatives. This would have prepared him for a future that lacked any criminal act. Minkow could have focused on finding the best financial advisers and asking them about how possible he could acquire loans and credit to grow his ZZZZ Best Company. When it comes to growing a company, it is crucial to focus on customers and the nature of the work. It is not always easy to acquire the needed customers at the early developmental phases of a business (Aizenman & Yi , 2012). One has to pick some many odd jobs before landing a major project. Patience is the best virtue in business. Comment by Microsoft Office 用户: confusing Comment by Microsoft Office 用户: off topic. Please focus on the auditing issues.

Concerning the audit procedures to detect the fraud in the case, the audit firms should have started by focusing on the financial statements of the company since the beginning in connection to its job site. It becomes difficult for one to false statements that involve several job sites. The audit firms needed to concentrate knowledge on the exposures and identify the symptoms associated with the occurrences. The same would have occurred via behavior indicators and symptoms. It is essential to comprehend risks before focusing on the symptoms. Symptoms involve lies told without any evidence in place. It is easy to create fake paperwork that denotes real jobs, just as Minkow did with his company. The checks had signatures and showed valid transactions despite them being fake. It is essential to look at receipts regarding the checks and the approved purchases. Invoices to packing slips make it possible to identify fraudulent activities in a case such as Minkow. Comment by Microsoft Office 用户: confusing Comment by Microsoft Office 用户: not sure what this is trying to say. Where the analysis on what specifically the auditors should have done?


It is important to note that Minkow was a clever lad out of the situation. He was able to play the auditors and the members of the SEC. Banks and other credit institutions were also incompetent to march his wits. However, he did not have enough proof to substantiate his operations in the market. As a restoration insurance firm, it is crucial to have information about job sites and sources of funds. However, Minkow lacked the above which influenced his business to be considered fraudulent. If Ernst & Young had thought of checking into statements, invoices, and the nature of the job sites, they would have known if they were dealing with a reliable and valid business. However, it assumed that its client was doing well with fraudulent statements and invoices.

Overall: It’s not clear what the auditing issues were. There were limited analyses. Needed more discussion regarding what they could’ve done differently or how auditors could have caught the fraud by conducting certain procedures.

Awkward phrasing detracted from the writing. Please consider visiting the writing center in the future. You may benefit from visiting the writing center to get some help ( I would like to see some evidence that you visited the writing center (they can send me an email confirmation).


Aizenman, J., & Yi , S. (2012). Aizenman, J., & Sun, Y. (2012). The financial crisis and sizable international reserves depletion: From ‘fear of floating’to the ‘fear of losing international reserves’? International Review of Economics & Finance, 24, 250-269.

Knapp, M. (2010). Contemporary Auditing: Real Issues and Cases, Updated. Cincinnati, OH: South-Western.

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