@PROFDOCDIGITALLIBRARIES
SOLUTION MANUAL
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.
,@PROFDOCDIGITALLIBRARIES
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
,@PROFDOCDIGITALLIBRARIES
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
,@PROFDOCDIGITALLIBRARIES
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
SOLUTION MANUAL
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.
,@PROFDOCDIGITALLIBRARIES
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
,@PROFDOCDIGITALLIBRARIES
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
,@PROFDOCDIGITALLIBRARIES
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
