1
,• Tableof Contents pr
Chapterpr1:prAnprIntroductionprtoprAssuranceprand prFinancial prStatement prAuditing
pr Chapter pr2: prThe prFinancial prStatementfAuditing prEnvironment
Chapterpr3:prAuditprPlanning,prTypesprofprAuditprTests,prand
Materiality prChapter pr4: prRisk prAssessment
pr
Chapterpr5:prEvidenceprand prDocumentation
Chapter pr6: prInternal prControl prinfa prFinancial prStatementfAudit
pr Chapterpr7:prAuditingprInternal prControl proverprFinancial prReporting
Chapter pr8: prAudit prSampling: prAn prOverview prand prApplicationftofTests prof prControls
pr Chapterpr9:prAuditprSampling: prAnprApplication prtoprSubstantiveprTests profprAccount prBalances
pr Chapter pr10: prAuditingfthe prRevenue prProcess
Chapter pr11: prAuditingfthe prPurchasing prProcess
Chapterpr12: prAuditingprtheprHumanfResourceprManagement
Process prChapter pr13: prAuditing prthe prInventory prManagement
pr
pr Process
Chapter pr14: prAuditingprthe prFinancing/Investing prProcess:Prepaid prExpenses, prIntangible prAssets, prand prProperty, prPlant, prand prEqu
prment
Chapter pr15: prAuditingfthe prFinancing/Investing prProcess:Long-
Term prLiabilities, prStockholders’ prEquity, prand prIncome prStatement prAccounts
pr Chapterpr16: prAuditingprthe prFinancing/Investing prProcess: prCashand
Investments prChapter pr17: prCompleting prthefAuditfEngagement
pr
Chapterpr18: prReports pronfAudited prFinancial prStatements
Chapterpr19: prProfessional prConduct, prIndependence, prand prQualityprManagement
pr Chapter pr20: prLegal prLiability
2
,Chapterpr21: prAssurance, prAttestation, prand prInternal prAuditing prServices
3
, CHAPTERf1
AN prINTRODUCTION p r TO p r ASSURANCE p r AND prFINANCIAL prSTATEMENT p r AUDITING
AnswersprtoprReviewprQuestions
1-1 The prstudy prof prauditing pris prmore prconceptual prin prnature prcompared prto prother praccounting
prcourses. prR prather prthan prfocusing pron prlearning prthe prrules, prtechniques, prand prcomputations prrequired
prtof prepare prfinancia prlstatements, prauditing premphasizes prlearning praframeworkfof pranalytical
prandlogicalskillsfto prevaluate prthe p r relevance prand prreliability prof prthe prsystems prand prprocesses
prresponsible prfor prfinancial prinformation, pras prwell prasf the prinformation pritself. prTo prbe prsuccessful,
prstudents prmustflearn prthe prframework prand prthen prlearn prto prusefl progicf and prcommon prsense prin
prapplying prauditing prconcepts prtof variousf circumstances prand prsituations.
Understanding prauditing prcanimprovefthedecision prmaking prability profconsultants,
prbusinessma prnagers, prand praccountants prby prproviding pra prframeworkffor prevaluating prthe
prusefulness prandreliabil prity prof prinformation.
1-2 There pris pra prdemand prfor prauditing prin pra prfree-
market preconomy prbecause prthe pragency prrelationship prbetween pran prabsentee prowner prand pra
prmanager prpro prduces pra prnatural prconflict prof printerestf due prto prthefinformation prasymmetry prthat prexists
prbetween prthe prowner prand prmanager. prAs pra prresult, prtheagentf agrees prto prbe prmonitored prasfpart prof
prhis/her premploymentfcontract. prAuditing prappears prto prbef acost-effective prform prof prmonitoring.
Theempirical p r evidence p r suggestsauditing pr was p r demandedprior
p r togovernmentf regulationsuc p r h pras prstatutory prauditf requirements. prAdditionally, prmany prprivate
prcompanies prand prother prentities prnot prsubje prctf to prgovernment prauditing prregulations pralso prdemand
prauditing.
1-3 The pragency prrelationship prbetween pran prowner prand prmanager prproduces pra prnatural prconflict
prof printe prrest prbecause prof prdifferencesfin prthe prtwo prparties‘ prgoals prand prbecause prof
prinformationfasymmetrythatfexi prsts prbetween prthem. prThat pris, prthe prmanager prgenerally prhasfmore
prinformation praboutf the pr‗true‘financial prpo prsition prand prresultsf of properations prof prthef entity prthan prthe
prabsentee prowner prdoes. prIf prboth prparties prseek prto prm praximize prtheir prown prself-
interest, pritfisflikely prthatfthe prmanager prwill prnot pract prin prthe prbest printerestfof prthe prowner prand prmay
prmanipulate prt prhe prinformation prprovided prto prthe prowner praccordingly.
1-4 Independence prisfan primportantfstandard prfor prauditors. prIf pran prauditor pris prnot prindependent
profthe prc prlient, prusers prmay prlosef confidence prin prthe prauditor‘s prability prto prreport prtruthfully pron prthe
prfinancial prstatements
, prand prthe prauditor‘s prworkfloses prits prvalue. prFrom pran pragency prperspective, prif prthe prprincipal pr(owner)
prknowsf t prhatf theauditor pris prnotf independent, prthe prowner prwill prnot prtrust prthef auditor‘s prwork.
Thus, prtheagentwillnot prhire prtheauditor prbecausethefauditor‘s prreportfwillnotfbeeffective prinreducing prinf
p r ormation prriskf from prthe f perspective prof prthe prowner.
1-5 Auditing pr(broadly prdefined) pris pra prsystematic prprocess prof probjectively probtaining prand
prevaluatin prgevidence prregarding prassertions praboutf economicf actionsfand preventstoascertain
prthedegree prof prcor prrespondence prbetween prthose prassertions prand prestablished prcriteria prand
prcommunicating prthe prresults prt pro printerested prusers.
Assurancefis prengagement prin prwhich pra prpractitioner prexpresses pra prconclusion prdesigned prto
prenha prncethedegreeofconfidence p r of p r theintended p r users p r other p r thantheresponsible p r party
p r aboutthe p r outcom pre prof prthe prevaluation pror prmeasurementf of pra prsubject prmatter pragainstf criteria.
Examples prof prassurance prservices prarefassurance pr(audit) prof prfinancial prstatements,
4
