Professional Auditing Report: Video Analysis and Principles

This report examines professional auditing, using videos related to the ZZZZ Best Carpet Cleaning Company as a case study to illustrate key concepts from the course modules. The report highlights two critical aspects: the prevalence of fraud in financial records and the importance of adhering to accounting principles and standards. The analysis emphasizes how auditors can manipulate financial statements for personal gain, as demonstrated by the ZZZZ Best case. It underscores the necessity of meeting accounting standards, such as those issued by the Accounting Standards Board, to prevent fraud. The report discusses the challenges organizations face due to deficiencies in the audit and assurance processes, leading to legal liabilities for auditors and the need for professional skepticism. It stresses the importance of auditors ensuring the reliability of financial statements to avoid lawsuits, and the role of ethical conduct in preventing fraud. The report concludes by emphasizing that professionalizing auditing and adhering to a code of ethics is essential to avoid fraud and ensure the reliability of financial reporting.

Running head: PROFESSIONAL AUDITING 1
Professional Auditing
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Course
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PROFESSIONAL AUDITING 2
Professional Auditing
The term auditing can be defined as the process of examining a company’s books,
accounts, and statutory records for the purpose of knowing how far the financial records
possess truth and fair view of concern, (Knechel, W.R., and Salterio, S.E., 2016). The two
videos have illustrated how financial auditors can manipulate the books of accounts to their
own gain through the user accounts receivable text which was used by the CEO of the ZZZZ
Best Carpet Cleaning Company, Barry Minkow, (Don Ray., 2014). There are two things that
are evident on the two videos that are seen on the two modules such as cases of fraud in the
books of accounts and principles/standards. To avoid such obscurity and obscenity
accounting standards should be met, for example, the Accounting Standards Board should
issue all entities outside the public sector.
Many organizations have been facing challenges in relation to fraud related cases due
to a deficiency in the financial audit & assurance process. Many companies have been
investigated and found to be guilty by the law enforcement and the Fraud Discovery Institute
for the stock-manipulation scam such as the ZZZZ Best Carpet Cleaning Company. Every
auditor has responsibilities and legal liability towards their clients and third parties. Thus,
every business requires professional auditing/scepticism to excel. However, certain standards
and principles should be met by the company in question and should report any illegal or
suspicion of a fraudulent case in the auditing books.
Fraudulent issues are basically activities that have increased over the years due to
fewer restrictions in the place of auditing the books of accounts, (gaapquest, 2010). Certain
procedures should be set to help keep the books of accounts in check and should be
scrutinized thoroughly by independent and competent financial auditing experts, (Ridley, J.,
2017). The issue of legal liability of auditors continues to grow on a daily basis. These issues

PROFESSIONAL AUDITING 3
can include breach of contract towards the client and negligence due to the failure of applying
the due care concept towards the third party. Thus, it is the responsibility of the auditor to
ensure the reliability of financial statements for all kinds of external users to avoid a lawsuit,
(Schrank, R., 2018).
Most companies have entrusted their financial accounting books to auditors who are
not prudent people and they have lost billions of money through fraud. It is upon the
companies to employ the code of professional conduct of every auditor, (Drogalas, G., et al.,
2017). The ZZZZ Best Carpet Cleaning Company come to a shut down due to the director’s
involvement in doing fraud on certain financial banks that lends money. It is evident from the
above paper that, auditing requires professionalizing and use of the code of ethics to be able
to avoid such fraud activities. Every auditor, thus, has a responsibility of ensuring the
reliability of financial statements for all kinds of external users is scrutinized to avoid a
lawsuit.

PROFESSIONAL AUDITING 4
References
Drogalas, G., Pazarskis, M., Anagnostopoulou, E. and Papachristou, A., 2017. The effect of
internal audit effectiveness, auditor responsibility and training in fraud detection. Accounting
and Management Information Systems, 16(4), pp.434-454.
Don Ray., 2014. ZZZZ Best Exposé --- Barry Minkow. Retrieved from
https://www.youtube.com/watch?v=lJbf2Ql2-vM
Gaapquest. 2010. ZZZBest and Barry Minkow. Retrieved from
https://www.youtube.com/watch?v=7fZVyyWvWE8
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Legal Liability, and the Audit Market Under Risk Aversion (October 1, 2018).
Ridley, J., 2017. Creative and Innovative Auditing. Routledge.
Schrank, R., 2018. Audit Quality, Legal Liability, and the Audit Market under Risk Aversion.