SOLUTIONvMANUALvforvAuditingv&vAssurancevServicesvAvSyste
maticvApproachv
12th Edition by William Messier Jr, Steven Glover,
v v v v v v v v
Chaptersv1v-v21v/vComplete
1
,• TablevofvContents
Chapterv1:vAnvIntroductionvtovAssurancevandvFinancialvStatementvAuditing
Chapterv2:vThevFinancialvStatementvAuditingvEnvironment
Chapterv3:vAuditvPlanning,vTypesvofvAuditvTests,vandvMateriality
Chapterv4:vRiskvAssessment
Chapterv5:vEvidencevandvDocumentation
Chapterv6:vInternalvControlvinvavFinancialvStatementvAudit
Chapterv7:vAuditingvInternalvControlvovervFinancialvReporting
Chapterv8:vAuditvSampling:vAnvOverviewvandvApplicationvtovTestsvofvControls
Chapterv9:vAuditvSampling:vAnvApplicationvtovSubstantivevTestsvofvAccountvBalances
Chapterv10:vAuditingvthevRevenuevProcess
Chapterv11:vAuditingvthevPurchasingvProcess
Chapterv12:vAuditingvthevHumanvResourcevManagementvProcess
Chapterv13:vAuditingvthevInventoryvManagementvProcess
Chapterv14:vAuditingvthevFinancing/InvestingvProcess:PrepaidvExpenses,vIntangiblevAssets,vandvProperty,vPlant,vandv
Equipment
Chapterv15:vAuditingvthevFinancing/InvestingvProcess:Long-
TermvLiabilities,vStockholders’vEquity,vandvIncomevStatementvAccounts
Chapterv16:vAuditingvthevFinancing/InvestingvProcess:vCashandvInvestments
Chapterv17:vCompletingvthevAuditvEngagement
Chapterv18:vReportsvonvAuditedvFinancialvStatements
Chapterv19:vProfessionalvConduct,vIndependence,vandvQualityvManagement
Chapterv20:vLegalvLiability
Chapterv21:vAssurance,vAttestation,vandvInternalvAuditingvServices
2
,CHAPTERv1
ANv INTRODUCTIONv TOv ASSURANCEv ANDv FINANCIALv STATEMENTv AUDITING
AnswersvtovReviewvQuestions
1-1 Thevstudyvofvauditingvisvmorevconceptualvinvnaturevcomparedvtovothervaccountingvco
urses.vRathervthanvfocusingvonvlearningvthevrules,vtechniques,vandvcomputationsvrequiredvtov
preparevfinancialvstatements,vauditingvemphasizesvlearningvavframeworkvofvanalyticalvandvlogi
calvskillsvtovevaluatevthevrelevancevandvreliabilityvofvthevsystemsvandvprocessesvresponsiblevf
orvfinancialvinformation,vasvwellvasvthevinformationvitself.vTovbevsuccessful,vstudentsvmustvlea
rnvthevframeworkvandvthenvlearnvtovusevlogicvandvcommonvsensevinvapplyingvauditingvconce
ptsvtovvariousvcircumstancesv andvsituations.
Understandingvauditingvcanvimprovevthevdecisionvmakingvabilityvofvconsultants,vbusine
ssvmanagers,vandvaccountantsvbyvprovidingvavframeworkvforvevaluatingvthevusefulnes
svandvreliabilityvofvinformation.
1-2 Therevisvavdemandvforvauditingvinvavfree-
marketveconomyvbecausevthevagencyvrelationshipvbetweenvanvabsenteevownervandvavmana
gervproducesvavnaturalvconflictvofvinterestvduevtovthevinformationvasymmetryvthatvexistsvbetw
eenvthevownervandvmanager.vAsvavresult,vthevagentvagreesvtovbevmonitoredvasvpartvofvhis/h
ervemploymentvcontract.vAuditingvappearsvtovbevavcost-effectivevformvofvmonitoring.
Thevempiricalvevidencevsuggestsvauditingvwasvdemandedvpriorvtovgovernmentvregulati
onvsuchvasvstatutoryvauditvrequirements.vAdditionally,vmanyvprivatevcompaniesvandvotherventi
tiesvnotvsubjectvtovgovernmentvauditingvregulationsvalsovdemandvauditing.
1-3 Thevagencyvrelationshipvbetweenvanvownervandvmanagervproducesvavnaturalvconflict
vofvinterestvbecausevofvdifferencesvinvthevtwovparties’vgoalsvandvbecausevofvinformationvasy
mmetryvthatvexistsvbetweenvthem.vThatvis,vthevmanagervgenerallyvhasvmorevinformationvabo
utvthev‘true’vfinancialvpositionvandvresultsvofvoperationsvofvtheventityvthanvthevabsenteevowner
vdoes.vIfvbothvpartiesvseekvtovmaximizevtheirvownvself-
interest,vitvisvlikelyvthatvthevmanagervwillvnotvactvinvthevbestvinterestvofvthevownervandvmayv
manipulatevthevinformationvprovidedvtovthevownervaccordingly.
1-4 Independencevisvanvimportantvstandardvforvauditors.vIfvanvauditorvisvnotvindependent
vofvthevclient,vusersvmayvlosevconfidencevinvthevauditor’svabilityvtovreportvtruthfullyvonvthevfina
ncialvstatements,vandvthevauditor’svworkvlosesvitsvvalue.vFromvanvagencyvperspective,vifvthev
principalv(owner)vknowsvthatvthevauditorvisvnotvindependent,vthevownervwillvnotvtrustvthevaudit
or’svwork.
Thus,vthevagentvwillvnotvhirevthevauditorvbecausevthevauditor’svreportvwillvnotvbeveffectivevinvre
ducingvinformationvriskvfromvthevperspectivevofvthevowner.
1-5 Auditingv(broadlyvdefined)visvavsystematicvprocessvofvobjectivelyvobtainingvandveva
luatingvevidencevregardingvassertionsvaboutveconomicvactionsvandveventsvtovascertainvthevd
egreevofvcorrespondencevbetweenvthosevassertionsvandvestablishedvcriteriavandvcommunic
atingvthevresultsvtovinterestedv users.
Assurancevisvengagementvinvwhichvavpractitionervexpressesvavconclusionvdesignedvt
ovenhancevthevdegreevofvconfidencevofvthevintendedvusersvothervthanvthevresponsiblevpartyva
boutvthevoutcomevofvthevevaluationvorvmeasurementvofvavsubjectvmattervagainstvcriteria.
Examplesvofvassurancevservicesvarevassurancev(audit)vofvfinancialvstatements,vassura
ncevofvprospectivevfinancialvinformation,vassurancevofvreportingvonvinternalvcontrol,vassurancev
3
, ofvsustainabilityvreporting,vandvassurancevofvelectronicvcommerce.
4
maticvApproachv
12th Edition by William Messier Jr, Steven Glover,
v v v v v v v v
Chaptersv1v-v21v/vComplete
1
,• TablevofvContents
Chapterv1:vAnvIntroductionvtovAssurancevandvFinancialvStatementvAuditing
Chapterv2:vThevFinancialvStatementvAuditingvEnvironment
Chapterv3:vAuditvPlanning,vTypesvofvAuditvTests,vandvMateriality
Chapterv4:vRiskvAssessment
Chapterv5:vEvidencevandvDocumentation
Chapterv6:vInternalvControlvinvavFinancialvStatementvAudit
Chapterv7:vAuditingvInternalvControlvovervFinancialvReporting
Chapterv8:vAuditvSampling:vAnvOverviewvandvApplicationvtovTestsvofvControls
Chapterv9:vAuditvSampling:vAnvApplicationvtovSubstantivevTestsvofvAccountvBalances
Chapterv10:vAuditingvthevRevenuevProcess
Chapterv11:vAuditingvthevPurchasingvProcess
Chapterv12:vAuditingvthevHumanvResourcevManagementvProcess
Chapterv13:vAuditingvthevInventoryvManagementvProcess
Chapterv14:vAuditingvthevFinancing/InvestingvProcess:PrepaidvExpenses,vIntangiblevAssets,vandvProperty,vPlant,vandv
Equipment
Chapterv15:vAuditingvthevFinancing/InvestingvProcess:Long-
TermvLiabilities,vStockholders’vEquity,vandvIncomevStatementvAccounts
Chapterv16:vAuditingvthevFinancing/InvestingvProcess:vCashandvInvestments
Chapterv17:vCompletingvthevAuditvEngagement
Chapterv18:vReportsvonvAuditedvFinancialvStatements
Chapterv19:vProfessionalvConduct,vIndependence,vandvQualityvManagement
Chapterv20:vLegalvLiability
Chapterv21:vAssurance,vAttestation,vandvInternalvAuditingvServices
2
,CHAPTERv1
ANv INTRODUCTIONv TOv ASSURANCEv ANDv FINANCIALv STATEMENTv AUDITING
AnswersvtovReviewvQuestions
1-1 Thevstudyvofvauditingvisvmorevconceptualvinvnaturevcomparedvtovothervaccountingvco
urses.vRathervthanvfocusingvonvlearningvthevrules,vtechniques,vandvcomputationsvrequiredvtov
preparevfinancialvstatements,vauditingvemphasizesvlearningvavframeworkvofvanalyticalvandvlogi
calvskillsvtovevaluatevthevrelevancevandvreliabilityvofvthevsystemsvandvprocessesvresponsiblevf
orvfinancialvinformation,vasvwellvasvthevinformationvitself.vTovbevsuccessful,vstudentsvmustvlea
rnvthevframeworkvandvthenvlearnvtovusevlogicvandvcommonvsensevinvapplyingvauditingvconce
ptsvtovvariousvcircumstancesv andvsituations.
Understandingvauditingvcanvimprovevthevdecisionvmakingvabilityvofvconsultants,vbusine
ssvmanagers,vandvaccountantsvbyvprovidingvavframeworkvforvevaluatingvthevusefulnes
svandvreliabilityvofvinformation.
1-2 Therevisvavdemandvforvauditingvinvavfree-
marketveconomyvbecausevthevagencyvrelationshipvbetweenvanvabsenteevownervandvavmana
gervproducesvavnaturalvconflictvofvinterestvduevtovthevinformationvasymmetryvthatvexistsvbetw
eenvthevownervandvmanager.vAsvavresult,vthevagentvagreesvtovbevmonitoredvasvpartvofvhis/h
ervemploymentvcontract.vAuditingvappearsvtovbevavcost-effectivevformvofvmonitoring.
Thevempiricalvevidencevsuggestsvauditingvwasvdemandedvpriorvtovgovernmentvregulati
onvsuchvasvstatutoryvauditvrequirements.vAdditionally,vmanyvprivatevcompaniesvandvotherventi
tiesvnotvsubjectvtovgovernmentvauditingvregulationsvalsovdemandvauditing.
1-3 Thevagencyvrelationshipvbetweenvanvownervandvmanagervproducesvavnaturalvconflict
vofvinterestvbecausevofvdifferencesvinvthevtwovparties’vgoalsvandvbecausevofvinformationvasy
mmetryvthatvexistsvbetweenvthem.vThatvis,vthevmanagervgenerallyvhasvmorevinformationvabo
utvthev‘true’vfinancialvpositionvandvresultsvofvoperationsvofvtheventityvthanvthevabsenteevowner
vdoes.vIfvbothvpartiesvseekvtovmaximizevtheirvownvself-
interest,vitvisvlikelyvthatvthevmanagervwillvnotvactvinvthevbestvinterestvofvthevownervandvmayv
manipulatevthevinformationvprovidedvtovthevownervaccordingly.
1-4 Independencevisvanvimportantvstandardvforvauditors.vIfvanvauditorvisvnotvindependent
vofvthevclient,vusersvmayvlosevconfidencevinvthevauditor’svabilityvtovreportvtruthfullyvonvthevfina
ncialvstatements,vandvthevauditor’svworkvlosesvitsvvalue.vFromvanvagencyvperspective,vifvthev
principalv(owner)vknowsvthatvthevauditorvisvnotvindependent,vthevownervwillvnotvtrustvthevaudit
or’svwork.
Thus,vthevagentvwillvnotvhirevthevauditorvbecausevthevauditor’svreportvwillvnotvbeveffectivevinvre
ducingvinformationvriskvfromvthevperspectivevofvthevowner.
1-5 Auditingv(broadlyvdefined)visvavsystematicvprocessvofvobjectivelyvobtainingvandveva
luatingvevidencevregardingvassertionsvaboutveconomicvactionsvandveventsvtovascertainvthevd
egreevofvcorrespondencevbetweenvthosevassertionsvandvestablishedvcriteriavandvcommunic
atingvthevresultsvtovinterestedv users.
Assurancevisvengagementvinvwhichvavpractitionervexpressesvavconclusionvdesignedvt
ovenhancevthevdegreevofvconfidencevofvthevintendedvusersvothervthanvthevresponsiblevpartyva
boutvthevoutcomevofvthevevaluationvorvmeasurementvofvavsubjectvmattervagainstvcriteria.
Examplesvofvassurancevservicesvarevassurancev(audit)vofvfinancialvstatements,vassura
ncevofvprospectivevfinancialvinformation,vassurancevofvreportingvonvinternalvcontrol,vassurancev
3
, ofvsustainabilityvreporting,vandvassurancevofvelectronicvcommerce.
4
