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SOLUTION MANUAL for Principles Of Auditing and Other Assurance Services 22rd Edition by Whittington Kurt ALL Chapters 1 – 21 covered

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Principles of Auditing & Other Assurance 23rd ed

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Principles Of Auditing & Other Assurance 23rd Ed

SOLUTION MANUAL for Principles Of Auditing and Other Assurance Services 22rd Edition by Whittington Kurt ALL Chapters 1 – 21 covered SOLUTION MANUAL for Principles Of Auditing and Other Assurance Services 22rd Edition by Whittington Kurt ALL Chapters 1 – 21 covered SOLUTION MANUAL for Princip...

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Institution Principles of Auditing & Other Assurance 23rd ed
Course Principles of Auditing & Other Assurance 23rd ed

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SOLUTION MANUAL
Principles Of Auditing and Other Assurance Services
23rd Edition by Whittington Kurt
ALL Chapters 1 – 21 covered

, • Table of Contents
v v

Chapterv1:vThevRolevofvthevPublicvAccountantvinvthevAmericanEconomy

Chapterv2:vProfessionalvStandards

Chapterv3:vProfessionalvEthics

Chapterv4:vLegalvLiabilityvofvCPAs

Chapterv5:vAuditvEvidencevandvDocumentation

Chapterv6:vAuditvPlanning,vUnderstandingvthevClient,vAssessingRisks,vandvResponding

Chapterv7:vInternalvControl

Chapterv8:vConsiderationvofvInternalvControlvinvanvInformationTechnologyvEnvironment

Chapterv9:vAuditvSampling

Chapterv10:vCashvandvFinancialvInvestments

Chapterv11:vAccountsvReceivable,vNotesvReceivable,vandRevenue

Chapterv12:vInventoriesvandvCostvofvGoodsvSold

Chapterv13:vProperty,vPlant,vandvEquipment:vDepreciationvandDepletion

Chapterv14:vAccountsvPayablevandvOthervLiabilities

Chapterv15:vDebtvandvEquityvCapital

Chapterv16:vAuditingvOperationsvandvCompletingvthevAudit

Chapterv17:vAuditors’vReports

Chapterv18:vIntegratedvAuditsvofvPublicvCompanies

Chapterv19:vAdditionalvAssurancevServices:vHistoricalvFinancialInformation

Chapterv20:vAdditionalvAssurancevServices:vOthervInformation

Chapterv21:vInternal,vOperational,vandvCompliancevAuditing

,CHAPTER 1 v

The Role of the Publi
v v v v

c Accountant in the
v v v

American Economy v

Review vQuestions

1-1 Thev―crisisv ofvcredibility‖vlargelyvarosevfromvthevnumbervofvcompaniesv thatvrestatedvtheirvpreviouslyvissued
vfinancialv statementsv asv av resultv ofv accountingv irregularitiesv andvfraud.v Especiallyvresponsiblevwerevthevver

yvvisiblevEnronvandvWorldComvfraudv cases.v Bothvcompaniesv filedv forv bankruptcyvandvconstitutedvthevlarg
estv companiesv invAmericanv historyvtovdovso.v Thevextentv ofv thevaccountingvirregularitiesv andvfraudvbeingvin
vestigatedvandv disclosedvbroughtv intovquestionvtheveffectivenessvofvfinancialvstatementv audits.v Invaddition,v
thevcriminalvconvictionvofv Arthurv Andersen,vLLP,vonevofv thevthenvBigv5v accountingvfirms,vonvchargesv ofvd
estroyingvdocumentsv relatedvtov thevEnronvcasevbroughtv intovquestionvthevethicsv standardsv ofvthevprofessio
n.

1-2 Assurancevservicesvarevprofessionalvservicesvthatvenhancevthevqualityvofvinformation,vorvitsvcontext,vforv
decision-
making.vThevtwovtypesvare:v(a)vthosevthatvincreasevthevreliabilityvofvinformationvandv(b)vthosevthatvinvol
ve vputtingvinformationvinvavformvorvcontextvthatvfacilitatesvdecision-making.

1-3 Avfinancialv statementv auditv is,v byvfar,v thevmostv commonv typevofvattestv engagement.v Thevoverallv assertion,v
madevbyvmanagement,vmostvfrequentlyvisvthatvthevfinancialvstatementsvfollowvgenerallyvacceptedvaccounti
ngvprinciples.

1-4 Avlargevcorporationvwithvsecuritiesv listedvonvav stockvexchangevisvrequiredvbyvthevrulesv ofv thevstockvexchang
evandv byvthevrulesv ofv thevSecuritiesv andvExchangevCommissionv tov providevanv auditv reportv withv thevannualvfi
nancialvstatementsv furnishedvtovitsv stockholders.v Itv alsovisvrequiredvtovengagevthevauditorsv tovprovidevanvopi
nionvonvitsvinternalvcontrol.v Apartvfromvlegalvrequirements,vhowever,vavlargev listedvcorporationvrecognize
sv thatv itv mustv maintainvinvestorvconfidencevinv thevreliabilityvofv itsvfinancialvstatementsv andv internalvcontrolv
overv financialvreportingv ifv itv isv tovcontinuev tovbevablev tov securevcapitalvfromvthevpublic.v Thevreportv byvavfir
mvofvcertifiedvpublicvaccountantsvaddsvcredibilityvtovthevfinancialvstatementsv preparedv byvthevcorporation.v
Whenv av smallvfamily-
ownedventerprisevelectsv tov havevanv audit,vthevpurposevusuallyvisv tovusevthevauditors'vreportv tovsupportvanvapp
licationv forvav bankvloan.

, 1-5 Avreportv byvanv independentv publicvaccountantv concerningvthevfairnessv ofvavcompany'sv financialvstatementsvi
svcommonlyvrequiredvinvthevfollowingvsituations:

(1) Applicationvforv avbankv loan.
(2) Establishingv creditv forv purchasevofv merchandise,vequipment,v orv otherv assets.
(3) Reportingv operatingvresults,vfinancialv position,vandv cashv flowsv tov absenteev ownersv (stockholdersv
or vpartners).
(4) Issuancevofv securitiesv byvav corporation.
(5) Annualvfinancialv statementsv byvavcorporationvwithv securitiesv listedvonv av stockvexchangevorv tradedv
overvthevcounter.
(6) Salevofvanvongoingvbusiness.
(7) Terminationv ofv av partnership.

1-6 Tovaddvcredibilityvtovfinancialvstatementsv isv tovincreasevthevlikelihoodvthatv theyvhavevbeenvpreparedvfollowi
ngvthevappropriatevcriteria,v usuallyvgenerallyvacceptedvaccountingv principles.v Asv such,v anv increasevinvcredi
bilityvresultsv invfinancialvstatementsv thatvcanvbevbelievedvandvreliedvuponvbyvthirdvparties.

1-7 Businessv riskv isv thevriskv thatv thevinvestmentv willv bevimpairedvbecausevav companyvinvestedvinv isv unablevtov
meetv itsv financialvobligationsv duevtoveconomicvconditionsvorv poorv managementv decisions.v Informationvris
kvisvthevriskvthatvthevinformationvusedvtovassessvbusinessvriskvisvnotvaccurate.vAuditorsvcanv directlyvredu
cevinformationvrisk,vbutvhavevonlyvlimitedveffectvonvbusinessv risk.

1-8 Atv thevbeginningvofv thevcentury,vthevprincipalvobjectivevofvauditingvwasv thevpreventionvandvdetectionvofvfra
ud.v Auditv workvcenteredvonvthevbalancevsheet,vbecausevthevincomevstatementv wasvregardedvasv highlyvconfi
dentialv andv notv forv publicv disclosure.v Today,v thev principalv objectivev ofv auditingv isv tovformvanvopinionvonvt
hevfairnessv ofvfinancialvstatementsvandvtheirvconformityvwithvgenerallyvacceptedvaccountingvprinciples.v But
v thevprofessionalv standardsv alsov requirevthatv anvauditv bevdesignedv tovprovidevreasonablevassurance vofv detect

ingv materialv misstatements,v duev toverrorsv orv fraud.v Particularv emphasisv isv placedv onvthevincomevstatementv
whichvisv ofv greatv importancevtovinvestors.v Auditingvtodayvalsovhasv thevobjectivesv ofvmeetingvthevrequireme
ntsv ofv thevSecuritiesv andvExchangevCommissionv(SEC)v andvthevPublicvCompanyvAccountingvOversightv B
oardvforvpublicvcompanies.

1-9 Thevstatementv isv incorrect.vThevincreasingv integratedv databasesv ofv today,valongv withv availablevauditv
proceduresvmakevauditedventire vpopulationsvavpossibility vinvmanyvsituations.

1-10 Anvoperationalvauditv attemptsv tovmeasurevtheveffectivenessv andvefficiencyvofv av specificvunitv ofv anvorgan
ization.v Itv involvesv morevsubjectivevjudgmentsv thanvav compliancevauditv orvanvauditv ofv financialvstateme
ntsv becausevthevcriteriav ofveffectivenessv andv efficiencyvofvdepartmentalv performancevarevnotv asvclearlyv
establishedvasvarevmanyvlawsvandvregulationsv orv generallyvacceptedvaccountingvprinciples.
Thevreportv preparedv afterv completionv ofv anv operationalv auditv isv usuallyvdirectedv tov managementvof
vthevorganizationvinvwhichvthe vaudit vworkvwasvdone.

1-11 Avcompliancevauditv isv anvauditv tovdeterminevwhethervfinancialvreportsv orvothervassertionsvarev invcomplian
cevwithvestablishedvcriteria.v Thevnecessaryvingredientsv arevverifiablevdatavandvthevexistencevofvstandardsv e
stablishedv byvanv authoritativevbody.v Anv operationalvaudit,vonv thevotherv hand,v isv av reviewvofvavdepartmentv
orv otherv unitv ofvav businessv orv governmentalvorganizationvtovmeasurevtheveffectivenessv andvefficiencyvofv o
perations.v Internalvauditorsv oftenv performvoperationalvauditsv asv dovauditorsv employedvbyvthe vGovernmen
tvAccountabilityvOffice v(GAO)vofvthevfederalvgovernment.

1-12 Internalvauditorsv mustv bevindependentv ofv thevdepartmentv headsv andvotherv linevexecutivesv whosevworkvtheyvr
eview.v However,vinternalvauditorsv arevnotv independentv invthevsamevsensevasvav publicvaccountingvfirm.

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Exam (elaborations)

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