Zzzz best audit

Introduction

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.