[Type the document title]
SOLUTION MANUAL FOR LOUWERS, AUDITING
AND ASSURANCE SERVICES 9TH BY TIMOTHY
LOUWERS, PENELOPE BAGLEY EDITION,
VERIFIED CHAPTERS 1 - 12, COMPLETE NEWEST
VERSION
, [Type the document title]
Chapter 01
Auditing And Assurance Services
Learning Objectives
Review Multiple Exercises, Problems,
Checkpoints Choice And Simulations
1. Define Information Risk And Explain How 1, 2, 3 29, 31, 38 65*
The Financial Statement Auditing
Process Helps To Reduce This Risk,
Thereby Reducing The Cost Of Capital
For A Company.
2. Define And Contrast Assurance, 4, 5, 6, 7, 8 23, 25, 28, 44, 60, 65*
Attestation, 50
And Financial Statement Auditing Services.
3. Describe And Define The Assertions That 9, 10, 11 36, 39, 40, 41, 45, 62, 63, 67, 68, 69
Management Makes About The 46, 47, 48, 49, 52,
Recognition, Measurement, Presentation, 53, 54, 55, 57, 58,
And Disclosure Of The Financial 59
Statements And Explain Why Auditors Use
Them As A Focal Point Of The Audit.
4. Define Professional Skepticism And 12 24, 37 61
Explain Its Key Characteristics.
5. Describe The Organization Of Public 13, 14 30, 42, 56 72
Accounting Firms And Identify The Various
Services That They Offer.
6. Describe The Audits And Auditors 15, 16, 17, 18 26, 27, 32, 34, 35 64, 66
In Governmental, Internal, And
Operational Auditing.
7. List And Explain The Requirements For 19, 20, 21, 22 33, 43, 51 70, 71
Becoming A Certified Public Accountant
(Cpa) And Other Certifications Available
To An Accounting Professional.
(*) Item Relates To Multiple Learning Objectives
, [Type the document title]
Solutions For Review Checkpoints
1.1 Business Risk Is The Risk That An Entity Will Fail To Meet Its Business Objectives. When
Assessing Business Risk, A Professional Must Consider All Possible Threats To An Entity‘S Goals
And Objectives. Some Illustrative Examples Include The Risk That: 1) Its Existing Customers Will
Start Buying Products Or Services From Its Primary Competitors; 2) Its Product Lines Will
Become Obsolete; 3) Its Taxes Will Increase; 4) Key Government Contracts Will Be Lost; 5) Key
Employees Will Leave The Entity; And Many Other Examples Exist.
1.2 To Help Minimize Business Risk And Take Advantage Of Other Opportunities Presented In Today‘S
Competitive Business Environment, Decision Makers Such As Chief Executive Officers (Ceos)
Demand Timely, Relevant, And Reliable Information. There Are At Least Four Environmental
Conditions That Increase Demand For Reliable Information. First, Complexity Which Implies That
Events And Transactions In Today‘S Global Business Environment Can Be Complicated. Most
Investors Do Not Have The Level Of Expertise Needed To Properly Account For Complex
Transactions. Second Is Remoteness Which Implies That Decision Makers Are Often Separated
From Current And Potential Business Relationships Due To Distance And Time. For Example,
Investors May Not Be Able To Visit Distant Locations To Check Up On Their Investments. Third Is
Time-Sensitivity Which Implies That In Today‘S Economic Environment, Investors And Other Users
Of Financial Statements Need To Make Decisions More Rapidly Than Ever Before. As A Result, The
Ability To Promptly Obtain High-Quality Information Is Essential. Fourth Is A Consequence Which
Implies That Decisions May Very Well Involve Significant Investments. As A Result, The
Consequences Can Be Severe If Information Cannot Be Obtained
1.3 Of All The Different Risks Discussed In The Chapter Up To This Point, Information Risk Is The One
That Is Most Likely To Create The Demand For Independent And Objective Assurance Services Is
Information Risk Or The Probability That The Information Circulated By An Entity Will Be False Or
Misleading. Because The Primary Source Of Information For Investors And Creditors Is The
Company Itself, An Incentive Exists For That Company‘S Management To Make Their Business Or
Service Appear To Be Better Than It Actually May Be, To Put Their Best Foot Forward. As A Result,
Preparers And Issuers Of Financial Information (Directors, Managers, Accountants, And Other
People Employed In A Business) Might Benefit By Giving False, Misleading, Or Overly Optimistic
Information. This Potential Conflict Of Interest Between Information Providers And Users Which
Provides The Underlying Basis For The Demand For Reliable Information.
1.4 The Four Major Elements Of The Broad Definition Of Assurance Services Are
Independence. Cpas Want To Preserve Their Reputation And Competitive Advantage By Always
Preserving Integrity And Objectivity When Performing Assurance Services.
Professional Services. Virtually All Work Performed By Cpas Is Defined As ―Professional Services‖
As Long As It Involves Some Element Of Judgment Based On Education And Experience.
Improving The Quality Of Information Or Its Context. The Emphasis Is On ―Information,‖ Cpas‘
Traditional Area Of Expertise. Cpas Can Enhance Quality By Assuring Users About The Reliability
And Relevance Of Information, And These Two Features Are Closely Related To The Familiar
Credibility-Lending Products Of Attestation And Audit Services. ―Context‖ Is Relevance In A
Different Light. For Assurance Services, Improving The Context Of Information Refers To Improving
Its Usefulness When Targeted To Particular Decision Makers In The Surroundings Of Particular
Decision Problems.
For Decision Makers. As The ―Consumers‖ Of Assurance Services, Decision Makers Are The
Beneficiaries Of The Assurance Services. Decision Makers May Or May Not Be The ―Client‖ That
Pays The Fee And May Or May Not Be One Of The Parties To An Assertion Or Other Information,
But They Personify The Consumer Focus Of New And Different Professional Work.
1.5 An Assurance Services Engagement Is Any Assignment That Improves The Quality Of Information,
Or Its Context, For Decision Makers. Because Information (E.G., Financial Statements) Are Prepared
By Managers Of An Entity Who Have Authority And Responsibility For Financial Success Or Failure,
An Outsider May Be Skeptical That The Information Truly Is Objective, Free From Bias, Fully
, [Type the document title]
Informative, And Free From Material Error, Intentional Or Inadvertent. The Services Of An
Independent Auditor Helps Resolve Those Doubts Because The
Auditor‘S Success Depends Upon His Or Her Independent, Objective, And Competent Assessment
Of The Information (E.G., The Conformity Of The Financial Statements With The Appropriate
Reporting Framework). The Independent Auditor‘S Role Is To Lend Credibility To The
Information; Hence, The Outsider Will Likely Seek His Or Her Independent Opinion About The
Financial Statements.
1.6 An Attestation Engagement Is ―An Engagement In Which A Practitioner Is Engaged To Issue Or
Does Issue A Written Communication That Expresses A Conclusion About The Reliability Of A
Written Assertion That Is The Responsibility Of Another Party‖ (Ssae 10, At 101.01). To Attest
Means To Lend Credibility Or To Vouch For The Truth Or Accuracy Of The Statements That One
Party Makes To Another. The Attest Function Is A Term Often Applied To The Activities Of
Independent Cpas When Acting As Auditors Of Financial Statements.
1.7 An Assurance Service Engagement Is One That Improves The Quality Of Information, Or Its
Context, For Decision Makers. Thus, An Attestation Service Engagement Is One Type Of An
Assurance Service. Another Way Of Thinking About The Issue Is To Remember That The Financial
Statement Audit Engagement Is One Type Of An Attestation Service. Please See Exhibit 1.3 In The
Text Which Depicts The Relationship Among Assurance, Attestation, And Auditing Engagements.
1.8 According To The American Accounting Association, ―Auditing Is A Systematic Process Of
Objectively Obtaining And Evaluating Evidence Regarding Assertions About Economic Actions And
Events To Ascertain The Degree Of Correspondence Between The Assertions And Established
Criteria And Communicating The Results To Interested Users.‖ In Effect, Auditors Add Reliability
To The Information That Is Provided To Interested Users. Of Course, This Definition Is Focused
On An External Reporting Context. Students May Also Discuss How Governmental And Internal
Auditors Operate As Well.
In Response To ―What Do Auditors Do?‖ Students Can Respond By Stating That Auditors (1) Obtain
And Evaluate Evidence About Assertions Made By Management About Economic Actions And
Events, (2) Ascertain The Degree Of Correspondence Between The Assertions And The Appropriate
Reporting Framework, And (3) Issue An Audit Report (Opinion). Students Can Also Respond More
Generally By Stating That Auditors Essentially Lend Credibility To The Financial Statements
Presented By Management.
1.9 Financial Accounting Refers To The Process Of Recording, Classifying, Summarizing, And
Reporting About A Company‘S Assets, Liabilities, Capital, Revenues, And Expenses In The Financial
Statements In Accordance With The Applicable Financial Reporting Framework (E.G., Gaap). In So
Doing, The Management Team Is Making Several Assertions About The Financial Statements. The
Financial Accounting Process Is The Responsibility Of The Management Team.
Financial Statement Auditing Refers To The Process Whereby Professional Auditors Gather
Evidence Related To The Assertions That Management Makes In The Financial Statements,
Evaluates The Evidence And Concludes On The Fairness Of The Financial Statements In A Report.
They Differ Because Accountants Produce The Financial Statements In Accordance With The
Applicable Financial Reporting Framework. After This Is Complete, Financial Statement Auditors
Then Perform Procedures To Ascertain Whether The Financial Statements Have Been Prepared In
Accordance With The Applicable Financial Reporting Framework.
1.10 The Two Major Classifications Of Asb Assertions With Several Assertions In Each
Classification Are: Assertions About Classes Of Transactions And Events, And Related
Disclosures
Occurrence Assertion: The Objective Is To Establish With Evidence That Transactions Giving Rise
To Assets, Liabilities, Sales, And Expenses Occurred. Key Questions Include ―Did The Recorded
Sales Transactions Really Occur?‖
SOLUTION MANUAL FOR LOUWERS, AUDITING
AND ASSURANCE SERVICES 9TH BY TIMOTHY
LOUWERS, PENELOPE BAGLEY EDITION,
VERIFIED CHAPTERS 1 - 12, COMPLETE NEWEST
VERSION
, [Type the document title]
Chapter 01
Auditing And Assurance Services
Learning Objectives
Review Multiple Exercises, Problems,
Checkpoints Choice And Simulations
1. Define Information Risk And Explain How 1, 2, 3 29, 31, 38 65*
The Financial Statement Auditing
Process Helps To Reduce This Risk,
Thereby Reducing The Cost Of Capital
For A Company.
2. Define And Contrast Assurance, 4, 5, 6, 7, 8 23, 25, 28, 44, 60, 65*
Attestation, 50
And Financial Statement Auditing Services.
3. Describe And Define The Assertions That 9, 10, 11 36, 39, 40, 41, 45, 62, 63, 67, 68, 69
Management Makes About The 46, 47, 48, 49, 52,
Recognition, Measurement, Presentation, 53, 54, 55, 57, 58,
And Disclosure Of The Financial 59
Statements And Explain Why Auditors Use
Them As A Focal Point Of The Audit.
4. Define Professional Skepticism And 12 24, 37 61
Explain Its Key Characteristics.
5. Describe The Organization Of Public 13, 14 30, 42, 56 72
Accounting Firms And Identify The Various
Services That They Offer.
6. Describe The Audits And Auditors 15, 16, 17, 18 26, 27, 32, 34, 35 64, 66
In Governmental, Internal, And
Operational Auditing.
7. List And Explain The Requirements For 19, 20, 21, 22 33, 43, 51 70, 71
Becoming A Certified Public Accountant
(Cpa) And Other Certifications Available
To An Accounting Professional.
(*) Item Relates To Multiple Learning Objectives
, [Type the document title]
Solutions For Review Checkpoints
1.1 Business Risk Is The Risk That An Entity Will Fail To Meet Its Business Objectives. When
Assessing Business Risk, A Professional Must Consider All Possible Threats To An Entity‘S Goals
And Objectives. Some Illustrative Examples Include The Risk That: 1) Its Existing Customers Will
Start Buying Products Or Services From Its Primary Competitors; 2) Its Product Lines Will
Become Obsolete; 3) Its Taxes Will Increase; 4) Key Government Contracts Will Be Lost; 5) Key
Employees Will Leave The Entity; And Many Other Examples Exist.
1.2 To Help Minimize Business Risk And Take Advantage Of Other Opportunities Presented In Today‘S
Competitive Business Environment, Decision Makers Such As Chief Executive Officers (Ceos)
Demand Timely, Relevant, And Reliable Information. There Are At Least Four Environmental
Conditions That Increase Demand For Reliable Information. First, Complexity Which Implies That
Events And Transactions In Today‘S Global Business Environment Can Be Complicated. Most
Investors Do Not Have The Level Of Expertise Needed To Properly Account For Complex
Transactions. Second Is Remoteness Which Implies That Decision Makers Are Often Separated
From Current And Potential Business Relationships Due To Distance And Time. For Example,
Investors May Not Be Able To Visit Distant Locations To Check Up On Their Investments. Third Is
Time-Sensitivity Which Implies That In Today‘S Economic Environment, Investors And Other Users
Of Financial Statements Need To Make Decisions More Rapidly Than Ever Before. As A Result, The
Ability To Promptly Obtain High-Quality Information Is Essential. Fourth Is A Consequence Which
Implies That Decisions May Very Well Involve Significant Investments. As A Result, The
Consequences Can Be Severe If Information Cannot Be Obtained
1.3 Of All The Different Risks Discussed In The Chapter Up To This Point, Information Risk Is The One
That Is Most Likely To Create The Demand For Independent And Objective Assurance Services Is
Information Risk Or The Probability That The Information Circulated By An Entity Will Be False Or
Misleading. Because The Primary Source Of Information For Investors And Creditors Is The
Company Itself, An Incentive Exists For That Company‘S Management To Make Their Business Or
Service Appear To Be Better Than It Actually May Be, To Put Their Best Foot Forward. As A Result,
Preparers And Issuers Of Financial Information (Directors, Managers, Accountants, And Other
People Employed In A Business) Might Benefit By Giving False, Misleading, Or Overly Optimistic
Information. This Potential Conflict Of Interest Between Information Providers And Users Which
Provides The Underlying Basis For The Demand For Reliable Information.
1.4 The Four Major Elements Of The Broad Definition Of Assurance Services Are
Independence. Cpas Want To Preserve Their Reputation And Competitive Advantage By Always
Preserving Integrity And Objectivity When Performing Assurance Services.
Professional Services. Virtually All Work Performed By Cpas Is Defined As ―Professional Services‖
As Long As It Involves Some Element Of Judgment Based On Education And Experience.
Improving The Quality Of Information Or Its Context. The Emphasis Is On ―Information,‖ Cpas‘
Traditional Area Of Expertise. Cpas Can Enhance Quality By Assuring Users About The Reliability
And Relevance Of Information, And These Two Features Are Closely Related To The Familiar
Credibility-Lending Products Of Attestation And Audit Services. ―Context‖ Is Relevance In A
Different Light. For Assurance Services, Improving The Context Of Information Refers To Improving
Its Usefulness When Targeted To Particular Decision Makers In The Surroundings Of Particular
Decision Problems.
For Decision Makers. As The ―Consumers‖ Of Assurance Services, Decision Makers Are The
Beneficiaries Of The Assurance Services. Decision Makers May Or May Not Be The ―Client‖ That
Pays The Fee And May Or May Not Be One Of The Parties To An Assertion Or Other Information,
But They Personify The Consumer Focus Of New And Different Professional Work.
1.5 An Assurance Services Engagement Is Any Assignment That Improves The Quality Of Information,
Or Its Context, For Decision Makers. Because Information (E.G., Financial Statements) Are Prepared
By Managers Of An Entity Who Have Authority And Responsibility For Financial Success Or Failure,
An Outsider May Be Skeptical That The Information Truly Is Objective, Free From Bias, Fully
, [Type the document title]
Informative, And Free From Material Error, Intentional Or Inadvertent. The Services Of An
Independent Auditor Helps Resolve Those Doubts Because The
Auditor‘S Success Depends Upon His Or Her Independent, Objective, And Competent Assessment
Of The Information (E.G., The Conformity Of The Financial Statements With The Appropriate
Reporting Framework). The Independent Auditor‘S Role Is To Lend Credibility To The
Information; Hence, The Outsider Will Likely Seek His Or Her Independent Opinion About The
Financial Statements.
1.6 An Attestation Engagement Is ―An Engagement In Which A Practitioner Is Engaged To Issue Or
Does Issue A Written Communication That Expresses A Conclusion About The Reliability Of A
Written Assertion That Is The Responsibility Of Another Party‖ (Ssae 10, At 101.01). To Attest
Means To Lend Credibility Or To Vouch For The Truth Or Accuracy Of The Statements That One
Party Makes To Another. The Attest Function Is A Term Often Applied To The Activities Of
Independent Cpas When Acting As Auditors Of Financial Statements.
1.7 An Assurance Service Engagement Is One That Improves The Quality Of Information, Or Its
Context, For Decision Makers. Thus, An Attestation Service Engagement Is One Type Of An
Assurance Service. Another Way Of Thinking About The Issue Is To Remember That The Financial
Statement Audit Engagement Is One Type Of An Attestation Service. Please See Exhibit 1.3 In The
Text Which Depicts The Relationship Among Assurance, Attestation, And Auditing Engagements.
1.8 According To The American Accounting Association, ―Auditing Is A Systematic Process Of
Objectively Obtaining And Evaluating Evidence Regarding Assertions About Economic Actions And
Events To Ascertain The Degree Of Correspondence Between The Assertions And Established
Criteria And Communicating The Results To Interested Users.‖ In Effect, Auditors Add Reliability
To The Information That Is Provided To Interested Users. Of Course, This Definition Is Focused
On An External Reporting Context. Students May Also Discuss How Governmental And Internal
Auditors Operate As Well.
In Response To ―What Do Auditors Do?‖ Students Can Respond By Stating That Auditors (1) Obtain
And Evaluate Evidence About Assertions Made By Management About Economic Actions And
Events, (2) Ascertain The Degree Of Correspondence Between The Assertions And The Appropriate
Reporting Framework, And (3) Issue An Audit Report (Opinion). Students Can Also Respond More
Generally By Stating That Auditors Essentially Lend Credibility To The Financial Statements
Presented By Management.
1.9 Financial Accounting Refers To The Process Of Recording, Classifying, Summarizing, And
Reporting About A Company‘S Assets, Liabilities, Capital, Revenues, And Expenses In The Financial
Statements In Accordance With The Applicable Financial Reporting Framework (E.G., Gaap). In So
Doing, The Management Team Is Making Several Assertions About The Financial Statements. The
Financial Accounting Process Is The Responsibility Of The Management Team.
Financial Statement Auditing Refers To The Process Whereby Professional Auditors Gather
Evidence Related To The Assertions That Management Makes In The Financial Statements,
Evaluates The Evidence And Concludes On The Fairness Of The Financial Statements In A Report.
They Differ Because Accountants Produce The Financial Statements In Accordance With The
Applicable Financial Reporting Framework. After This Is Complete, Financial Statement Auditors
Then Perform Procedures To Ascertain Whether The Financial Statements Have Been Prepared In
Accordance With The Applicable Financial Reporting Framework.
1.10 The Two Major Classifications Of Asb Assertions With Several Assertions In Each
Classification Are: Assertions About Classes Of Transactions And Events, And Related
Disclosures
Occurrence Assertion: The Objective Is To Establish With Evidence That Transactions Giving Rise
To Assets, Liabilities, Sales, And Expenses Occurred. Key Questions Include ―Did The Recorded
Sales Transactions Really Occur?‖
