Exam Prep 2026 Solution
1 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
Solution Manual For
Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson,
Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
Chapter 1-16
CHAPTER 1
Introduction and Overview of Audit and Assurance
Learning Objectives
1. Differentiate among assurance, attestation, and auditing services.
2. Describe the different types of assurance services.
3. Explain the demand for audit and assurance services.
4. Discuss the different roles of the financial statement preparer and the auditor.
5. Identify the roles of different regulators and organizations that affect the audit profession.
6. Explain the concepts of reasonable assurance, materiality, and the nature of an unquali-
fied/unmodified report on the audit of financial statements.
7. Explain the concept of reasonable assurance and the nature of an unqualified report on
internal controls over financial reporting.
8. Discuss the audit expectation gap.
ANSWERS TO MULTIPLE-CHOICE QUESTIONS
1. C
LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Assurance, Attestation, and Audit Services
2. A
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
3. B
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
4. C
LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
5. C
LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Demand for Audit and Assurance Services
1 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
,Exam Prep 2026 Solution
2 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
6. B
LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Preparers and Auditors
7. A
LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and
Regulations
8. D
LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA BC: Governance Perspective, Section: The Role of
Regulators and Regulations
9. D
LO 6, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Audit Report on Financial Statements
10. C
LO 6, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: Audit Report on the Financial
Statements
11. B
LO 7, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: Audit Report on Internal
Controls over Financial Reporting
12. B
LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA PC: Professional Behavior, Section: The Audit
Expectation Gap
ANSWERS TO REVIEW QUESTIONS
R1.1 An assurance service is any service provided by an independent practitioner that im-
proves the quality of information, or its context, for decision makers. An independent practitioner
can verify that the information meets relevant criteria, which provides assurance to users who
intend to use the information for decision making. An assurance engagement has three parties:
the assurance provider (auditor/practitioner), the party responsible for providing the information
(client), and the intended users of the information (investors/lenders/others who rely on the in-
formation).
LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Assurance, Attestation, and Audit Services
R1.2 The criterion used in a financial statement audit to measure and evaluate subject matter is
the applicable financial reporting framework used by the client. The most common framework
2 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
,Exam Prep 2026 Solution
3 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
used in the U.S. is Generally Accepted Accounting Principles (GAAP).
LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA AC: Measurement Analysis and Interpretation, Sec-
tion: Assurance, Attestation, and Audit Services
R1.3 Financial statements are not guaranteed to be free from error or fraud due to several limi-
tations. These limitations include the nature of financial reporting, the nature of audit procedures
and the need for the audit to be conducted within a reasonable period of time and within a rea-
sonable budget. The nature of financial reporting causes limitations because it includes man-
agement‘s judgment when applying accounting standards and estimates. The nature of the au-
dit procedures is a limitation because the auditors have to rely on management to provide all the
necessary documentation needed for the audit. The auditor may arrive at an inappropriate con-
clusion if information is tampered with or excluded. The last limitation refers to the limited re-
sources of time and money for an audit engagement. It would be impractical for auditors to ex-
amine every transaction. Therefore, auditors rely on sampling measures to provide an accurate
representation of the population, and sampling cannot provide absolute assurance.
LO 2, BT: C, Difficulty: Medium, TOT: 15 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
R1.4 Management and those charged with governance can request an operational audit to help
improve the efficiency and effectiveness of a company‘s operations. An organization‘s internal
audit department typically conducts operational audits.
LO 2, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA BC: Governance Perspective, Section: Different As-
surance Services
R1.5 Investors are interested in the information that financial statements can provide about their
investment. This includes, but is not limited to, information regarding the profitability of the com-
pany, return on investment, going concern/continuity of operations, and dividend distributions.
An independent audit helps to ensure that the information in the financial statements is credible
and of high quality.
LO 3, BT: C, Difficulty: Easy, TOT: 10 min., AACSB: None, AICPA BC: Governance Perspective, Section: Demand for
Audit and Assurance Services
R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financial
statements. Management (the preparer) is in charge of preparing the financial statements. This
includes ensuring the information is presented fairly and in compliance with GAAP, or other ap-
plicable financial reporting framework. Management is responsible for designing, implementing,
and maintaining internal control over financial reporting, as well as providing auditors with all the
necessary documentation and personnel needed to complete the audit. Auditors are responsible
for providing an opinion on whether the financial statements are presented fairly and in accord-
ance with the applicable financial reporting framework. The three responsibilities of auditors are
to conduct the audit in accordance with the appropriate audit standards, plan and perform the
audit with professional skepticism, and exercise professional judgment.
LO 4, BT: C, Difficulty: Medium, TOT: 15 min., AACSB: None, AICPA AC: Reporting, Section: Preparers and Auditors
3 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
, Exam Prep 2026 Solution
4 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
R1.7 The SOX Act of 2002, which emphasized a need for better governance over financial re-
porting, created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a
non-profit corporation established to oversee the audits of public companies. The U.S. Securi-
ties and Exchange Commission (SEC) is a federal government agency whose role is to enforce
and interpret securities laws. The SEC approves each new auditing standard established by the
PCAOB before it can be implemented. The SEC and PCAOB work closely together to ensure
standards are in place for both public companies and auditors to safeguard investors.
LO 5, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators
and Regulations
R1.8 Some functions of the state boards of accountancy include issuing Certified Public Ac-
countant (CPA) licenses, adopting and enforcing professional conduct rules for CPAs, enforcing
continuing professional education requirements, and administering disciplinary actions. The Na-
tional Association of State Boards of Accountancy (NASBA) is a professional organization that
works to unite the interests of the 55 jurisdictions of state boards with regulative and legislative
bodies.
LO 5, BT: AP, Difficulty: Easy, TOT: 10 min., AACSB: Analytic, AICPA PC: Professional Behavior, Section: The Role of
Regulators and Regulations
R1.9 The principles of Generally Accepted Audit Standards (GAAS) start with the purpose of an
audit, which is to provide an opinion on whether a company‘s financial statements are presented
fairly and in accordance with GAAP. The next principle describes the premise upon which an
audit is conducted. This outlines management‘s responsibility to prepare the financial state-
ments in accordance with the applicable framework, manage and maintain internal controls over
financial reporting, and provide the auditor with access to all documentation relevant to conduct
the audit. The next principle outlines the responsibilities of the auditor, which explicitly states
auditors have to be competent, comply with auditing standards, maintain professional skepti-
cism and exercise professional judgment during an audit. While performing an audit, an auditor
must obtain reasonable assurance that the financial statements are free from material mis-
statement, but also recognize it is not an absolute assurance due to several limitations. The last
principle states that auditors must report the results of the audit in a formalized written report.
LO 5, BT: C, Difficulty: Easy, TOT: 10 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and
Regulations
R1.10 Audit reports for private and public companies are very similar in content. Both reports
contain the essential components: a title with the word ―independent,‖ an address to the share-
holders/owners and board, identification of which financial statements were audited, an opinion
on the outcome, a description of the responsibilities of the parties involved, a description of the
conduct of an audit, a signature with the firm‘s name and a date indicating the end of fieldwork.
However, there are a few differences between the two. The title for an audit report of a public
company includes the term ―registered‖ indicating the firm is registered with the PCAOB. Audit
reports for public companies state the auditor is required to be independent from the company
in accordance with U.S. federal securities laws and with regulations of the SEC and PCAOB.
The report for a public company includes a paragraph referencing the audit of the firm‘s internal
4 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
1 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
Solution Manual For
Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson,
Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
Chapter 1-16
CHAPTER 1
Introduction and Overview of Audit and Assurance
Learning Objectives
1. Differentiate among assurance, attestation, and auditing services.
2. Describe the different types of assurance services.
3. Explain the demand for audit and assurance services.
4. Discuss the different roles of the financial statement preparer and the auditor.
5. Identify the roles of different regulators and organizations that affect the audit profession.
6. Explain the concepts of reasonable assurance, materiality, and the nature of an unquali-
fied/unmodified report on the audit of financial statements.
7. Explain the concept of reasonable assurance and the nature of an unqualified report on
internal controls over financial reporting.
8. Discuss the audit expectation gap.
ANSWERS TO MULTIPLE-CHOICE QUESTIONS
1. C
LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Assurance, Attestation, and Audit Services
2. A
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
3. B
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
4. C
LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
5. C
LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Demand for Audit and Assurance Services
1 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
,Exam Prep 2026 Solution
2 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
6. B
LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Preparers and Auditors
7. A
LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and
Regulations
8. D
LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA BC: Governance Perspective, Section: The Role of
Regulators and Regulations
9. D
LO 6, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Audit Report on Financial Statements
10. C
LO 6, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: Audit Report on the Financial
Statements
11. B
LO 7, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: Audit Report on Internal
Controls over Financial Reporting
12. B
LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA PC: Professional Behavior, Section: The Audit
Expectation Gap
ANSWERS TO REVIEW QUESTIONS
R1.1 An assurance service is any service provided by an independent practitioner that im-
proves the quality of information, or its context, for decision makers. An independent practitioner
can verify that the information meets relevant criteria, which provides assurance to users who
intend to use the information for decision making. An assurance engagement has three parties:
the assurance provider (auditor/practitioner), the party responsible for providing the information
(client), and the intended users of the information (investors/lenders/others who rely on the in-
formation).
LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Assurance, Attestation, and Audit Services
R1.2 The criterion used in a financial statement audit to measure and evaluate subject matter is
the applicable financial reporting framework used by the client. The most common framework
2 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
,Exam Prep 2026 Solution
3 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
used in the U.S. is Generally Accepted Accounting Principles (GAAP).
LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA AC: Measurement Analysis and Interpretation, Sec-
tion: Assurance, Attestation, and Audit Services
R1.3 Financial statements are not guaranteed to be free from error or fraud due to several limi-
tations. These limitations include the nature of financial reporting, the nature of audit procedures
and the need for the audit to be conducted within a reasonable period of time and within a rea-
sonable budget. The nature of financial reporting causes limitations because it includes man-
agement‘s judgment when applying accounting standards and estimates. The nature of the au-
dit procedures is a limitation because the auditors have to rely on management to provide all the
necessary documentation needed for the audit. The auditor may arrive at an inappropriate con-
clusion if information is tampered with or excluded. The last limitation refers to the limited re-
sources of time and money for an audit engagement. It would be impractical for auditors to ex-
amine every transaction. Therefore, auditors rely on sampling measures to provide an accurate
representation of the population, and sampling cannot provide absolute assurance.
LO 2, BT: C, Difficulty: Medium, TOT: 15 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management,
Section: Different Assurance Services
R1.4 Management and those charged with governance can request an operational audit to help
improve the efficiency and effectiveness of a company‘s operations. An organization‘s internal
audit department typically conducts operational audits.
LO 2, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA BC: Governance Perspective, Section: Different As-
surance Services
R1.5 Investors are interested in the information that financial statements can provide about their
investment. This includes, but is not limited to, information regarding the profitability of the com-
pany, return on investment, going concern/continuity of operations, and dividend distributions.
An independent audit helps to ensure that the information in the financial statements is credible
and of high quality.
LO 3, BT: C, Difficulty: Easy, TOT: 10 min., AACSB: None, AICPA BC: Governance Perspective, Section: Demand for
Audit and Assurance Services
R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financial
statements. Management (the preparer) is in charge of preparing the financial statements. This
includes ensuring the information is presented fairly and in compliance with GAAP, or other ap-
plicable financial reporting framework. Management is responsible for designing, implementing,
and maintaining internal control over financial reporting, as well as providing auditors with all the
necessary documentation and personnel needed to complete the audit. Auditors are responsible
for providing an opinion on whether the financial statements are presented fairly and in accord-
ance with the applicable financial reporting framework. The three responsibilities of auditors are
to conduct the audit in accordance with the appropriate audit standards, plan and perform the
audit with professional skepticism, and exercise professional judgment.
LO 4, BT: C, Difficulty: Medium, TOT: 15 min., AACSB: None, AICPA AC: Reporting, Section: Preparers and Auditors
3 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
, Exam Prep 2026 Solution
4 of 355 manual
Solution
for auditing
manual a practical
for auditing
approach
a practical
withapproach
data analytics
with data
2nd edition
analytics
by2nd
raymond
editionn by
johnson
raymond
laura
n johnson
davis wiley
laura davis wiley.pdf
R1.7 The SOX Act of 2002, which emphasized a need for better governance over financial re-
porting, created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a
non-profit corporation established to oversee the audits of public companies. The U.S. Securi-
ties and Exchange Commission (SEC) is a federal government agency whose role is to enforce
and interpret securities laws. The SEC approves each new auditing standard established by the
PCAOB before it can be implemented. The SEC and PCAOB work closely together to ensure
standards are in place for both public companies and auditors to safeguard investors.
LO 5, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators
and Regulations
R1.8 Some functions of the state boards of accountancy include issuing Certified Public Ac-
countant (CPA) licenses, adopting and enforcing professional conduct rules for CPAs, enforcing
continuing professional education requirements, and administering disciplinary actions. The Na-
tional Association of State Boards of Accountancy (NASBA) is a professional organization that
works to unite the interests of the 55 jurisdictions of state boards with regulative and legislative
bodies.
LO 5, BT: AP, Difficulty: Easy, TOT: 10 min., AACSB: Analytic, AICPA PC: Professional Behavior, Section: The Role of
Regulators and Regulations
R1.9 The principles of Generally Accepted Audit Standards (GAAS) start with the purpose of an
audit, which is to provide an opinion on whether a company‘s financial statements are presented
fairly and in accordance with GAAP. The next principle describes the premise upon which an
audit is conducted. This outlines management‘s responsibility to prepare the financial state-
ments in accordance with the applicable framework, manage and maintain internal controls over
financial reporting, and provide the auditor with access to all documentation relevant to conduct
the audit. The next principle outlines the responsibilities of the auditor, which explicitly states
auditors have to be competent, comply with auditing standards, maintain professional skepti-
cism and exercise professional judgment during an audit. While performing an audit, an auditor
must obtain reasonable assurance that the financial statements are free from material mis-
statement, but also recognize it is not an absolute assurance due to several limitations. The last
principle states that auditors must report the results of the audit in a formalized written report.
LO 5, BT: C, Difficulty: Easy, TOT: 10 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and
Regulations
R1.10 Audit reports for private and public companies are very similar in content. Both reports
contain the essential components: a title with the word ―independent,‖ an address to the share-
holders/owners and board, identification of which financial statements were audited, an opinion
on the outcome, a description of the responsibilities of the parties involved, a description of the
conduct of an audit, a signature with the firm‘s name and a date indicating the end of fieldwork.
However, there are a few differences between the two. The title for an audit report of a public
company includes the term ―registered‖ indicating the firm is registered with the PCAOB. Audit
reports for public companies state the auditor is required to be independent from the company
in accordance with U.S. federal securities laws and with regulations of the SEC and PCAOB.
The report for a public company includes a paragraph referencing the audit of the firm‘s internal
4 | © 2022 John Wiley and Sons, Inc. For Instructor Use Only
Solution manual for auditing a practical
Solutionapproach
manual for
with
auditing
data analytics
a practical
2ndapproach
edition by
with
raymond
data analytics
n johnson2ndlaura
edition
davis
by wiley.pdf
raymond n johnson laura davis wiley.pdf
