SOLUTION MANUAL FOR
Principles Of Auditing And Other Assurance Services
23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)
, • Table of Contents
p p
Chapterp1:pThepRolepofpthepPublicpAccountantpinpthepAmericanEconomy
Chapterp2:pProfessionalpStandards
Chapterp3:pProfessionalpEthics
Chapterp4:pLegalpLiabilitypofpCPAs
Chapterp5:pAuditpEvidencepandpDocumentation
Chapterp6:pAuditpPlanning,pUnderstandingpthepClient,pAssessingRisks,pandpResponding
Chapterp7:pInternalpControl
Chapterp8:pConsiderationpofpInternalpControlpinpanpInformationTechnologypEnvironment
Chapterp9:pAuditpSampling
Chapterp10:pCashpandpFinancialpInvestments
Chapterp11:pAccountspReceivable,pNotespReceivable,pandRevenue
Chapterp12:pInventoriespandpCostpofpGoodspSold
Chapterp13:pProperty,pPlant,pandpEquipment:pDepreciationpandDepletion
Chapterp14:pAccountspPayablepandpOtherpLiabilities
Chapterp15:pDebtpandpEquitypCapital
Chapterp16:pAuditingpOperationspandpCompletingpthepAudit
Chapterp17:pAuditors’pReports
Chapterp18:pIntegratedpAuditspofpPublicpCompanies
Chapterp19:pAdditionalpAssurancepServices:pHistoricalpFinancialInformation
Chapterp20:pAdditionalpAssurancepServices:pOtherpInformation
Chapterp21:pInternal,pOperational,pandpCompliancepAuditing
,CHAPTER 1 p
The Role of the Publi
p p p p
c Accountant in the
p p p
American Economy p
ReviewpQuestions
1-1 Thep―crisispofpcredibility‖plargelyparosepfrompthepnumberpofpcompaniespthatprestatedptheirppreviouslypissu
edpfinancialpstatementsp asp ap resultp ofp accountingpirregularitiesp andpfraud.p Especiallypresponsiblepwerepthe
pverypvisiblepEnronp andpWorldCompfraudp cases.pBothpcompaniesp filedp forp bankruptcypandp constitutedpth
eplargestp companiesp inpAmericanphistoryptopdopso.p Thepextentp ofpthepaccountingpirregularitiesp andpfraudp
beingpinvestigatedpandpdisclosedpbroughtp intopquestionpthepeffectivenessp ofp financialpstatementp audits.p In
paddition,pthepcriminalpconvictionpofpArthurpAndersen,pLLP,ponepofpthepthenpBigp5p accountingpfirms,ponpc
hargesp ofpdestroyingpdocumentsp relatedptopthepEnronpcasepbroughtp intopquestionpthepethicsp standardsp ofpt
hepprofession.
1-2 Assurancepservicesparepprofessionalpservicespthatpenhancepthepqualitypofpinformation,porpitspcontext,pfor
pdecision-
making.pTheptwoptypespare:p(a)pthosepthatpincreasepthepreliabilitypofpinformationpandp(b)pthosepthatpinv
olvepputtingpinformationpinpapformporpcontextpthatpfacilitatespdecision-making.
1-3 Apfinancialpstatementp auditp is,pbypfar,pthepmostp commonptypepofp attestp engagement.p Thepoverallpassertion
,pmadepbypmanagement,pmostpfrequentlypispthatpthepfinancialpstatementspfollowpgenerallypacceptedpaccoun
tingpprinciples.
1-4 Aplargepcorporationpwithpsecuritiesplistedponpapstockpexchangepisprequiredpbyptheprulespofpthepstockpexchan
gepandpbyptheprulesp ofp thepSecuritiesp andpExchangepCommissionptopprovidepanpauditp reportp withpthepannu
alpfinancialpstatementsp furnishedptopitsp stockholders.p Itp alsopisp requiredptopengagepthepauditorsp topprovidep
anpopinionponpitspinternalpcontrol.pApartpfromplegalprequirements,phowever,paplargeplistedpcorporationpre
cognizespthatpitpmustpmaintainpinvestorpconfidencepinpthepreliabilitypofpitspfinancialpstatementsp andp interna
lp controlp overp financialp reportingp ifp itp isp top continueptop bepableptop securepcapitalpfromptheppublic.p Theprep
ortp bypapfirmpofpcertifiedppublicpaccountantsp addsp credibilityptopthepfinancialpstatementsp preparedpbypthepc
orporation.p Whenpap smallpfamily-
ownedpenterprisepelectsp tophavepanpaudit,ptheppurposepusuallypisptopusepthepauditors'preportptopsupportpanpa
pplicationp forpapbankploan.
, 1-5 Apreportp bypanpindependentppublicpaccountantp concerningpthepfairnessp ofpap company'sp financialpstatement
spispcommonlyprequiredpinpthepfollowingpsituations:
(1) Applicationpforp apbankploan.
(2) Establishingpcreditp forp purchasepofp merchandise,pequipment,porp otherp assets.
(3) Reportingpoperatingpresults,pfinancialpposition,p andpcashpflowsp topabsenteepownersp (stockholder
sporppartners).
(4) Issuancepofp securitiesp bypap corporation.
(5) Annualpfinancialpstatementsp bypap corporationpwithpsecuritiesp listedponpap stockpexchangeporp trade
dpoverpthepcounter.
(6) Salepofp anpongoingpbusiness.
(7) Terminationpofp ap partnership.
1-6 Topaddpcredibilityptopfinancialpstatementsp isptopincreaseptheplikelihoodpthatp theyphavepbeenppreparedpfollo
wingpthepappropriatepcriteria,pusuallypgenerallypacceptedpaccountingpprinciples.p Asp such,panpincreasepinpcr
edibilitypresultsp inpfinancialpstatementspthatp canpbepbelievedpandpreliedpuponpbypthirdpparties.
1-7 Businessp riskpisp thepriskpthatp thepinvestmentp willpbepimpairedpbecausepapcompanypinvestedpinpisp unablept
opmeetpitspfinancialpobligationspdueptopeconomicpconditionsporppoorpmanagementpdecisions.pInformationp
riskpispthepriskpthatpthepinformationpusedptopassesspbusinesspriskpispnotpaccurate.pAuditorspcanpdirectlyp
reducepinformationprisk,pbutphaveponlyplimitedpeffectponpbusinessprisk.
1-8 Atpthepbeginningpofpthepcentury,pthepprincipalpobjectivepofpauditingpwasp theppreventionpandpdetectionpofpf
raud.p Auditp workpcenteredponpthepbalancepsheet,pbecausepthepincomepstatementpwasp regardedpasp highlypco
nfidentialpandpnotp forp publicpdisclosure.p Today,p thepprincipalpobjectivepofp auditingpisp topformpanpopinion
ponpthepfairnessp ofp financialpstatementsp andptheirp conformitypwithpgenerallypacceptedpaccountingpprinciple
s.p Butp thepprofessionalpstandardsp alsoprequirepthatp anpauditp bepdesignedptopprovidepreasonablepassurancep
ofp detectingpmaterialpmisstatements,p dueptoperrorsp orp fraud.p Particularp emphasisp isp placedponpthepincome
pstatementp whichpisp ofp greatp importanceptopinvestors.p Auditingptodaypalsophasp thepobjectivesp ofpmeetingpt
heprequirementsp ofpthepSecuritiesp andpExchangepCommissionp(SEC)p andpthepPublicpCompanypAccountin
gpOversightpBoardpforppublicpcompanies.
1-9 Thepstatementp isp incorrect.pThepincreasingpintegratedpdatabasesp ofp today,palongpwithpavailablepaudi
tpprocedurespmakepauditedpentireppopulationspappossibilitypinpmanypsituations.
1-10 Anpoperationalpauditp attemptsp topmeasurepthepeffectivenessp andpefficiencypofpapspecificpunitp ofpanporg
anization.p Itpinvolvesp morepsubjectivepjudgmentspthanpapcompliancepauditp orpanpauditpofpfinancialpstat
ementsp becausepthepcriteriap ofp effectivenessp andpefficiencypofpdepartmentalpperformanceparepnotp aspcl
earlypestablishedpasp arepmanyplawsp andpregulationsporpgenerallypacceptedpaccountingpprinciples.
Thepreportp preparedpafterp completionpofp anpoperationalpauditp isp usuallypdirectedptopmanagementp
ofptheporganizationpinpwhichpthepauditpworkpwaspdone.
1-11 Apcompliancepauditpispanpauditptopdeterminepwhetherpfinancialpreportsporpotherpassertionsparep inpcomplia
ncepwithpestablishedpcriteria.p Thepnecessarypingredientsp arepverifiablepdatap andpthepexistencepofpstandard
sp establishedpbypanpauthoritativepbody.p Anpoperationalpaudit,ponpthepotherp hand,pisp ap reviewpofp apdepart
mentp orpotherpunitp ofpapbusinessp orpgovernmentalporganizationptopmeasurepthepeffectivenessp andpefficien
cypofpoperations.p Internalpauditorsp oftenpperformpoperationalpauditsp asp dopauditorsp employedpbypthepGo
vernmentpAccountabilitypOfficep(GAO)pofpthepfederalpgovernment.
1-12 Internalpauditorsp mustp bepindependentp ofpthepdepartmentp headsp andpotherplinepexecutivespwhosepworkpthe
ypreview.pHowever,pinternalpauditorsparepnotpindependentpinpthepsamepsensepaspappublicpaccountingpfirm.
