Solution Manual for Auditing & Assurance Services A Systematic Approach 12th Edition | Verified Guide.

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,• Tableof Contents xf




Chapter 1: An Introduction to Assurance and Financial Statement Auditing
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xf Chapter 2: The Financial StatementfAuditing Environment
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Chapter3: Audit Planning, Types ofAudit Tests, and Materiality
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xf Chapter 4: Risk Assessment
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Chapter 5: Evidence and Documentation
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Chapter 6: Internal Control infa Financial StatementfAudit
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xf Chapter 7: Auditing Internal Control over Financial Reporting
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Chapter 8: Audit Sampling: An Overview and ApplicationftofTests of Controls Chapter
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9: Audit Sampling: An Application to Substantive Tests of Account Balances Chapter 10:
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xf Auditingfthe Revenue Process xf xf




Chapter 11: Auditingfthe Purchasing Process
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Chapter 12: Auditing the HumanfResource Management Process
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xf Chapter 13: Auditing the Inventory Management Process
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Chapter 14: Auditing the Financing/Investing Process:Prepaid Expenses, Intangible Assets, and Property, Plant, and Equip me
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Chapter 15: Auditingfthe Financing/Investing Process:Long-
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Term Liabilities, Stockholders’ Equity, and Income Statement Accounts
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xf Chapter 16: Auditing the Financing/Investing Process: Cashand Investments
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xf Chapter 17: Completing thefAuditfEngagement
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Chapter 18: Reports onfAudited Financial Statements
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Chapter 19: Professional Conduct, Independence, and Quality Management
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xf Chapter 20: Legal Liability
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Chapter 21: Assurance, Attestation, and Internal Auditing Services
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,CHAPTERf1

AN INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
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Answersto ReviewQuestions xf xf xf




1-1 The study of auditing is more conceptual in nature compared to other accounting courses. R
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ather than focusing on learning the rules, techniques, and computations required tofprepare financia
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lstatements, auditing emphasizes learning aframeworkfof analytical andlogicalskillsfto evaluate the
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relevance and reliability ofthe systems and processes responsible for financial information, aswell
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asfthe information itself. To be successful, students mustflearn the framework and then learn to usefl
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ogicfand common sense in applying auditing concepts tofvariousfcircumstances and situations.
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Understanding auditing canimprovefthedecision making ability ofconsultants, businessma xf xf xf xf xf xf



nagers, and accountants by providing a frameworkffor evaluating the usefulness andreliabil
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ity of information.
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1-2 There is a demand for auditing in a free- xf xf xf xf xf xf xf xf



market economy because the agency relationship between an absentee owner and a manager pro
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duces a natural conflict of interestfdue to thefinformation asymmetry that exists between the owner
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and manager. As a result, theagentfagrees to be monitored asfpart of his/her employmentfcontract.
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Auditing appears to befacost-effective form of monitoring.
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Theempirical evidence suggestsauditing was demandedprior xf xf xf xf



togovernmentfregulationsuc
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companies and other entities not subje ctfto government auditing regulations also demand
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auditing.
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1-3 The agency relationship between an owner and manager produces a natural conflict of inte
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rest because of differencesfin the two parties‘ goals and because of informationfasymmetrythatfexi
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sts between them. That is, the manager generally hasfmore information aboutfthe ‗true‘financial po
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sition and resultsfof operations of thefentity than the absentee owner does. If both parties seek to m
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aximize their own self-
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interest, itfisflikely thatfthe manager will not act in the best interestfof the owner and may manipulate t
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he information provided to the owner accordingly.
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1-4 Independence isfan importantfstandard for auditors. If an auditor is not independent ofthe c xf xf xf xf xf xf xf xf xf xf xf xf



lient, users may losefconfidence in the auditor‘s ability to report truthfully on the financial
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statements
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, and the auditor‘s workfloses its value. From an agency perspective, if the principal (owner) knowsft
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hatftheauditor is notfindependent, the owner will not trust thefauditor‘s work.
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Thus, theagentwillnot hire theauditor becausethefauditor‘s reportfwillnotfbeeffective inreducing inf
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x ormation riskffrom thefperspective of the owner.
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1-5 Auditing (broadly defined) is a systematic process of objectively obtaining and evaluatin xf xf xf xf xf xf xf xf xf xf xf



gevidence regarding assertions aboutfeconomicfactionsfand eventstoascertain thedegree of cor
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respondence between those assertions and established criteria and communicating the results t
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o interested users.
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Assurancefis engagement in which a practitioner expresses a conclusion designed to enha xf xf xf xf xf xf xf xf xf xf xf



ncethedegreeofconfidence of theintended users other thantheresponsible party aboutthe
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outcom e of the evaluation or measurementfof a subject matter againstfcriteria.
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Examples of assurance services arefassurance (audit) of financial statements, assurance o xf xf xf xf xf xf xf xf xf xf



f prospective financial information, assurance of reporting oninternal control,assurance of
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, xf sustaina bility reporting, and assurance of electronicfcommerce.
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