SOLUTION MANUAL for Auditing & Assurance Services A Syste
m m m m m m m m
matic Approach
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12th Edition by William Messier Jr, Steven Glover,
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Chapters 1 - 21 / Complete
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1
,• Table of Contents
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Chapterm1:mAnmIntroductionmtomAssurancemandmFinancialmStatementmAuditing
Chapterm2:mThemFinancialmStatementmAuditingmEnvironment
Chapterm3:mAuditmPlanning,mTypesmofmAuditmTests,mandmMateriality
Chapterm4:mRiskmAssessment
Chapterm5:mEvidencemandmDocumentation
Chapterm6:mInternalmControlminmamFinancialmStatementmAudit
Chapterm7:mAuditingmInternalmControlmovermFinancialmReporting
Chapterm8:mAuditmSampling:mAnmOverviewmandmApplicationmtomTestsmofmControls
Chapterm9:mAuditmSampling:mAnmApplicationmtomSubstantivemTestsmofmAccountmBalances
Chapterm10:mAuditingmthemRevenuemProcess
Chapterm11:mAuditingmthemPurchasingmProcess
Chapterm12:mAuditingmthemHumanmResourcemManagementmProcess
Chapterm13:mAuditingmthemInventorymManagementmProcess
Chapterm14:mAuditingmthemFinancing/InvestingmProcess:PrepaidmExpenses,mIntangiblemAssets,mandmProperty,mPlant,mandm
Equipment
Chapterm15:mAuditingmthemFinancing/InvestingmProcess:Long-
TermmLiabilities,mStockholders’mEquity,mandmIncomemStatementmAccounts
Chapterm16:mAuditingmthemFinancing/InvestingmProcess:mCashandmInvestments
Chapterm17:mCompletingmthemAuditmEngagement
Chapterm18:mReportsmonmAuditedmFinancialmStatements
Chapterm19:mProfessionalmConduct,mIndependence,mandmQualitymManagement
Chapterm20:mLegalmLiability
Chapterm21:mAssurance,mAttestation,mandmInternalmAuditingmServices
2
,CHAPTERm1
ANm INTRODUCTIONm TOm ASSURANCEm ANDm FINANCIALm STATEMENTm AUDITING
AnswersmtomReviewmQuestions
1-1 Themstudymofmauditingmismmoremconceptualminmnaturemcomparedmtomothermaccountingmco
urses.mRathermthanmfocusingmonmlearningmthemrules,mtechniques,mandmcomputationsmrequiredmtom
preparemfinancialmstatements,mauditingmemphasizesmlearningmamframeworkmofmanalyticalmandmlogi
calmskillsmtomevaluatemthemrelevancemandmreliabilitymofmthemsystemsmandmprocessesmresponsiblemf
ormfinancialminformation,masmwellmasmtheminformationmitself.mTombemsuccessful,mstudentsmmustmlea
rnmthemframeworkmandmthenmlearnmtomusemlogicmandmcommonmsenseminmapplyingmauditingmconce
ptsmtomvariousmcircumstancesm andmsituations.
Understandingmauditingmcanmimprovemthemdecisionmmakingmabilitymofmconsultants,mbusine
ssmmanagers,mandmaccountantsmbymprovidingmamframeworkmformevaluatingmthemusefulnes
smandmreliabilitymofminformation.
1-2 Theremismamdemandmformauditingminmamfree-
marketmeconomymbecausemthemagencymrelationshipmbetweenmanmabsenteemownermandmammana
germproducesmamnaturalmconflictmofminterestmduemtomtheminformationmasymmetrymthatmexistsmbet
weenmthemownermandmmanager.mAsmamresult,mthemagentmagreesmtombemmonitoredmasmpartmofmhis/
hermemploymentmcontract.mAuditingmappearsmtombemamcost-effectivemformmofmmonitoring.
Themempiricalmevidencemsuggestsmauditingmwasmdemandedmpriormtomgovernmentmregulati
onmsuchmasmstatutorymauditmrequirements.mAdditionally,mmanymprivatemcompaniesmandmothermenti
tiesmnotmsubjectmtomgovernmentmauditingmregulationsmalsomdemandmauditing.
1-3 Themagencymrelationshipmbetweenmanmownermandmmanagermproducesmamnaturalmconflict
mofminterest mbecausem ofmdifferences minmthemtwomparties’ mgoalsmandmbecause mofminformation masy
mmetrymthatmexistsmbetweenmthem.mThatmis,mthemmanagermgenerallymhasmmoreminformationmabo
utmthem‘true’mfinancialmpositionmandmresultsmofmoperationsmofmthementitymthanmthemabsenteemowne
rmdoes.mIfmbothmpartiesmseekmtommaximizemtheirmownmself-
interest,mitmismlikelymthatmthemmanagermwillmnotmactminmthembestminterestmofmthemownermandmmaym
manipulatemtheminformationmprovidedmtomthemownermaccordingly.
1-4 Independencemismanmimportantmstandardmformauditors.mIfmanmauditormismnotmindependen
tmofmthemclient,musersmmaymlosemconfidenceminmthemauditor’smabilitymtomreportmtruthfullymonmthemfin
ancialmstatements,mandmthemauditor’smworkmlosesmitsmvalue.mFrommanmagencymperspective,mifmth
emprincipalm(owner)mknowsmthatmthemauditormismnotmindependent,mthemownermwillmnotmtrustmthemau
ditor’smwork.
Thus,mthemagentmwillmnotmhiremthemauditormbecausemthemauditor’smreportmwillmnotmbemeffectiveminmr
educingminformationmriskmfrommthemperspectivemofmthemowner.
1-5 Auditingm(broadlymdefined)mismamsystematicmprocessmofmobjectivelymobtainingmandmev
aluatingmevidencemregardingmassertionsmaboutmeconomicmactionsmandmeventsmtomascertainmth
emdegreemofmcorrespondencembetweenmthosemassertionsmandmestablishedmcriteriamandmcomm
unicatingmthemresultsmtominterestedm users.
Assurancemismengagementminmwhichmampractitionermexpressesmamconclusionmdesignedmt
omenhancemthemdegreemofmconfidencemofmthemintendedmusersmothermthanmthemresponsiblempartym
aboutmthemoutcomemofmthemevaluationmormmeasurementmofmamsubjectmmattermagainstmcriteria.
Examplesmofmassurancemservicesmaremassurancem(audit)mofmfinancialmstatements,massur
ancemofmprospectivemfinancialminformation,massurancemofmreportingmonminternalmcontrol,massuranc
3
, emofmsustainabilitymreporting,mandmassurancemofmelectronicmcommerce.
4
m m m m m m m m
matic Approach
m m
12th Edition by William Messier Jr, Steven Glover,
m m m m m m m m
Chapters 1 - 21 / Complete
m m m m m
1
,• Table of Contents
m m
Chapterm1:mAnmIntroductionmtomAssurancemandmFinancialmStatementmAuditing
Chapterm2:mThemFinancialmStatementmAuditingmEnvironment
Chapterm3:mAuditmPlanning,mTypesmofmAuditmTests,mandmMateriality
Chapterm4:mRiskmAssessment
Chapterm5:mEvidencemandmDocumentation
Chapterm6:mInternalmControlminmamFinancialmStatementmAudit
Chapterm7:mAuditingmInternalmControlmovermFinancialmReporting
Chapterm8:mAuditmSampling:mAnmOverviewmandmApplicationmtomTestsmofmControls
Chapterm9:mAuditmSampling:mAnmApplicationmtomSubstantivemTestsmofmAccountmBalances
Chapterm10:mAuditingmthemRevenuemProcess
Chapterm11:mAuditingmthemPurchasingmProcess
Chapterm12:mAuditingmthemHumanmResourcemManagementmProcess
Chapterm13:mAuditingmthemInventorymManagementmProcess
Chapterm14:mAuditingmthemFinancing/InvestingmProcess:PrepaidmExpenses,mIntangiblemAssets,mandmProperty,mPlant,mandm
Equipment
Chapterm15:mAuditingmthemFinancing/InvestingmProcess:Long-
TermmLiabilities,mStockholders’mEquity,mandmIncomemStatementmAccounts
Chapterm16:mAuditingmthemFinancing/InvestingmProcess:mCashandmInvestments
Chapterm17:mCompletingmthemAuditmEngagement
Chapterm18:mReportsmonmAuditedmFinancialmStatements
Chapterm19:mProfessionalmConduct,mIndependence,mandmQualitymManagement
Chapterm20:mLegalmLiability
Chapterm21:mAssurance,mAttestation,mandmInternalmAuditingmServices
2
,CHAPTERm1
ANm INTRODUCTIONm TOm ASSURANCEm ANDm FINANCIALm STATEMENTm AUDITING
AnswersmtomReviewmQuestions
1-1 Themstudymofmauditingmismmoremconceptualminmnaturemcomparedmtomothermaccountingmco
urses.mRathermthanmfocusingmonmlearningmthemrules,mtechniques,mandmcomputationsmrequiredmtom
preparemfinancialmstatements,mauditingmemphasizesmlearningmamframeworkmofmanalyticalmandmlogi
calmskillsmtomevaluatemthemrelevancemandmreliabilitymofmthemsystemsmandmprocessesmresponsiblemf
ormfinancialminformation,masmwellmasmtheminformationmitself.mTombemsuccessful,mstudentsmmustmlea
rnmthemframeworkmandmthenmlearnmtomusemlogicmandmcommonmsenseminmapplyingmauditingmconce
ptsmtomvariousmcircumstancesm andmsituations.
Understandingmauditingmcanmimprovemthemdecisionmmakingmabilitymofmconsultants,mbusine
ssmmanagers,mandmaccountantsmbymprovidingmamframeworkmformevaluatingmthemusefulnes
smandmreliabilitymofminformation.
1-2 Theremismamdemandmformauditingminmamfree-
marketmeconomymbecausemthemagencymrelationshipmbetweenmanmabsenteemownermandmammana
germproducesmamnaturalmconflictmofminterestmduemtomtheminformationmasymmetrymthatmexistsmbet
weenmthemownermandmmanager.mAsmamresult,mthemagentmagreesmtombemmonitoredmasmpartmofmhis/
hermemploymentmcontract.mAuditingmappearsmtombemamcost-effectivemformmofmmonitoring.
Themempiricalmevidencemsuggestsmauditingmwasmdemandedmpriormtomgovernmentmregulati
onmsuchmasmstatutorymauditmrequirements.mAdditionally,mmanymprivatemcompaniesmandmothermenti
tiesmnotmsubjectmtomgovernmentmauditingmregulationsmalsomdemandmauditing.
1-3 Themagencymrelationshipmbetweenmanmownermandmmanagermproducesmamnaturalmconflict
mofminterest mbecausem ofmdifferences minmthemtwomparties’ mgoalsmandmbecause mofminformation masy
mmetrymthatmexistsmbetweenmthem.mThatmis,mthemmanagermgenerallymhasmmoreminformationmabo
utmthem‘true’mfinancialmpositionmandmresultsmofmoperationsmofmthementitymthanmthemabsenteemowne
rmdoes.mIfmbothmpartiesmseekmtommaximizemtheirmownmself-
interest,mitmismlikelymthatmthemmanagermwillmnotmactminmthembestminterestmofmthemownermandmmaym
manipulatemtheminformationmprovidedmtomthemownermaccordingly.
1-4 Independencemismanmimportantmstandardmformauditors.mIfmanmauditormismnotmindependen
tmofmthemclient,musersmmaymlosemconfidenceminmthemauditor’smabilitymtomreportmtruthfullymonmthemfin
ancialmstatements,mandmthemauditor’smworkmlosesmitsmvalue.mFrommanmagencymperspective,mifmth
emprincipalm(owner)mknowsmthatmthemauditormismnotmindependent,mthemownermwillmnotmtrustmthemau
ditor’smwork.
Thus,mthemagentmwillmnotmhiremthemauditormbecausemthemauditor’smreportmwillmnotmbemeffectiveminmr
educingminformationmriskmfrommthemperspectivemofmthemowner.
1-5 Auditingm(broadlymdefined)mismamsystematicmprocessmofmobjectivelymobtainingmandmev
aluatingmevidencemregardingmassertionsmaboutmeconomicmactionsmandmeventsmtomascertainmth
emdegreemofmcorrespondencembetweenmthosemassertionsmandmestablishedmcriteriamandmcomm
unicatingmthemresultsmtominterestedm users.
Assurancemismengagementminmwhichmampractitionermexpressesmamconclusionmdesignedmt
omenhancemthemdegreemofmconfidencemofmthemintendedmusersmothermthanmthemresponsiblempartym
aboutmthemoutcomemofmthemevaluationmormmeasurementmofmamsubjectmmattermagainstmcriteria.
Examplesmofmassurancemservicesmaremassurancem(audit)mofmfinancialmstatements,massur
ancemofmprospectivemfinancialminformation,massurancemofmreportingmonminternalmcontrol,massuranc
3
, emofmsustainabilitymreporting,mandmassurancemofmelectronicmcommerce.
4
