SOLUTION MANUAL for Auditing & Assurance Services A
Systematic Approach
12th Edition by William Messier Jr, Steven Glover,
Chapters 1 - 21 / Complete
1
,•
• Tableof Contents 4
f
Chapter f41: f4An f4Introduction f4to f4Assurance f4and f4Financial f4Statement f4Auditing
f4 Chapter f42: f4The f4Financial f4Statement,Auditing f4Environment
Chapter f43: f4Audit f4Planning, f4Types,of f4Audit f4Tests, f4and
Materiality f4Chapter f44: f4Risk f4Assessment
f4
Chapter f45: f4Evidence f4and f4Documentation
Chapter f46: f4Internal f4Control f4in f4a,Financial,Statement f4Audit
f4 Chapter f47: f4Auditing f4Internal f4Control f4over f4Financial f4Reporting
Chapter f48: f4Audit f4Sampling: f4An,Overview f4and f4Application,to f4Tests f4of f4Controls
f4 Chapter f49: f4Audit f4Sampling: f4An f4Application f4to f4Substantivef4Tests f4of f4Account
Balances f4Chapter f410: f4Auditingthe f4Revenue,Process
f4
Chapter f411: f4Auditingthef4Purchasing f4Process
Chapterf412:f4Auditingthef4Humanf4Resourcef4Managementf4Process
f4 Chapter f413: f4Auditingthe f4Inventory f4Management f4Process
Chapterf414:f4Auditingthef4Financing/Investing,Process:Prepaidf4Expenses, f4Intangible,Assets,f4andf4Property,f4Plant,f4and
f4Equip f4ment
Chapter f415: f4Auditingthe f4Financing/Investing,Process:Long-
Term f4Liabilities, f4Stockholders’ f4Equity, f4and f4Income f4Statement
f4 Accounts f4Chapterf416:f4Auditingthef4Financing/Investing,Process:f4Cashand
Investments f4Chapter f417: f4Completingthe f4Audit f4Engagement
f4
Chapter f418: f4Reports f4on f4Audited,Financial f4Statements
Chapter f419: f4Professional f4Conduct, f4Independence, f4and f4Quality
2
, Management f4Chapter f420: f4Legal f4Liability
f4
Chapter f421: f4Assurance, f4Attestation, f4and f4Internal f4Auditing f4Services
3
, CHAPTER,1
AN f4INTRODUCTION f4 TO f4 ASSURANCE f 4 AND f4FINANCIAL f4STATEMENT f 4 AUDITING
Answers f4to f4Review,Questions
1-1 The f4study f4of f4auditing f4is f4more f4conceptual f4in f4nature f4compared f4to f4other f4accounting
f4courses. f4Rather f4than f4focusing f4on f4learning f4the f4rules, f4techniques, f4and f4computations
f4required f4to f4prepare f4finan f4cial f4statements, f4auditing f4emphasizes f4learning f4aframework f4of
f4analytical f4andlogicalskills f4to,evaluate f4the f4relevance f4and f4reliability f4of f4the f4systems f4and
f4processes f4responsible f4for f4financial f4information, f4as f4well f4as f4the f4information f4itself. f4To f4be
f4successful, f4students f4must,learn f4the f4framework f4and f4then f4learn f4to f4use f4logic f4and f4common
f4sense f4in f4applying f4auditing f4concepts f4to f4various f4circumstances f 4 and f4situations
.
Understanding f4auditing f4can f4improve f4the f4decision f4making f4ability f4of f4consultants,
f4businessma f4nagers, f4and f4accountants f4by f4providing f4a f4framework f4for f4evaluating f4the
f4usefulness f4andreliabi f4lity f4of f4information.
1-2 There f4is f4a f4demand f4for f4auditing f4in f4a f4free-
market f4economy f4because f4the f4agency f4relationship f4between f4an f4absentee f4owner f4and f4a
f4manager f4pr f4oduces f4a f4natural f4conflict f4of f4interest f4due f4to f4the f4information f4asymmetry
f4that,exists f4between f4the f4own f4er f4and f4manager. f4As f4a f4result, f4theagent,agrees f4to f4be
f4monitored f4as f4part f4of f4his/her,employment,contr f4act. f4Auditing f4appears f4to f4be f4acost-effective
f4form f4of f4monitoring.
The f4empirical f4evidence f4suggests,auditing f4was f4demanded f4prior f4to f4government
f4regulationsu f4ch f4as f4statutory f4audit f4requirements. f4Additionally, f4many f4private f4companies f4and
f4other f4entities f4not f4sub f4ject,to f4government f4auditing f4regulations f4also f4demand f4auditing.
1-3 The f4agency f4relationship f4between f4an f4owner f4and f4manager f4produces f4a f4natural
f4conflict f4of f4int f4erest f4because f4of f4differences f4in f4the f4two f4parties’ f4goals f4and f4because f4of
f4information f4asymmetrythat,e f4xists f4between f4them. f4That f4is, f4the f4manager f4generally f4has
f4more f4information f4about,the f4‘true’financial f4position f4and f4results f4of f4operations,of f4the f4entity
f4than f4the f4absentee f4owner f4does. f4If f4both f4parties f4seek f4t f4o f4maximize f4their f4own f4self-
interest, f4it,is f4likely,that,the f4manager f4will f4not f4act f4in f4the f4best f4interest f4of,the f4owner,and f4may
f4manipulate f4the f4information f4provided f4to f4the f4owner f4accordingly.
1-4 Independence f4is f4an f4important,standard f4for f4auditors. f4If f4an f4auditor f4is f4not
f4independent,of,the f4client, f4users,may f4lose f4confidence f4in f4the f4auditor’s f4ability f4to
f4report,truthfully f4on f4the f4financial f4statemen f4ts, f4and f4the f4auditor’s f4work,loses f4its f4value. f4From
f4an f4agency f4perspective, f4if f4the f4principal f4(owner) f4know f4s,that,the f4auditor f4is f4not f4independent,
f4the f4owner f4will f4not f4trust f4the f4auditor’s f4work.
Thus, f4the f4agent,will f4not,hire f4the f4auditor f4because f4the f4auditor’s f4report f4will f4not,be f4effective
f4inreducing f4i f4nformation f4risk f4from f4the f4perspective f4of f4the f4owner.
1-5 Auditing f4(broadly f4defined) f4is f4a f4systematic,process f4of f4objectively f4obtaining f4and
f4evaluatin f 4 g f4evidence f4regarding f4assertions f4about,economic f4actions f4and f4events f4to
f4ascertain f4the,degree f4of f4co f4rrespondence f4between f4those f4assertions f4and f4established
f4criteria f4and f4communicating f4the f4results f 4 to f4interested f4users.
Assurance f4is f4engagement f4in f4which f4a f4practitioner f4expresses f4a f4conclusion f4designed
f4to f4enh f4ance f4the f4degree f4of f4confidence f4of f4the f4intended f4users f4other,than f4the f4responsible
f4party f4aboutthe f4outco f4me f4of f4the f4evaluation f4or f4measurement f4of f4a f4subject,matter
4
Systematic Approach
12th Edition by William Messier Jr, Steven Glover,
Chapters 1 - 21 / Complete
1
,•
• Tableof Contents 4
f
Chapter f41: f4An f4Introduction f4to f4Assurance f4and f4Financial f4Statement f4Auditing
f4 Chapter f42: f4The f4Financial f4Statement,Auditing f4Environment
Chapter f43: f4Audit f4Planning, f4Types,of f4Audit f4Tests, f4and
Materiality f4Chapter f44: f4Risk f4Assessment
f4
Chapter f45: f4Evidence f4and f4Documentation
Chapter f46: f4Internal f4Control f4in f4a,Financial,Statement f4Audit
f4 Chapter f47: f4Auditing f4Internal f4Control f4over f4Financial f4Reporting
Chapter f48: f4Audit f4Sampling: f4An,Overview f4and f4Application,to f4Tests f4of f4Controls
f4 Chapter f49: f4Audit f4Sampling: f4An f4Application f4to f4Substantivef4Tests f4of f4Account
Balances f4Chapter f410: f4Auditingthe f4Revenue,Process
f4
Chapter f411: f4Auditingthef4Purchasing f4Process
Chapterf412:f4Auditingthef4Humanf4Resourcef4Managementf4Process
f4 Chapter f413: f4Auditingthe f4Inventory f4Management f4Process
Chapterf414:f4Auditingthef4Financing/Investing,Process:Prepaidf4Expenses, f4Intangible,Assets,f4andf4Property,f4Plant,f4and
f4Equip f4ment
Chapter f415: f4Auditingthe f4Financing/Investing,Process:Long-
Term f4Liabilities, f4Stockholders’ f4Equity, f4and f4Income f4Statement
f4 Accounts f4Chapterf416:f4Auditingthef4Financing/Investing,Process:f4Cashand
Investments f4Chapter f417: f4Completingthe f4Audit f4Engagement
f4
Chapter f418: f4Reports f4on f4Audited,Financial f4Statements
Chapter f419: f4Professional f4Conduct, f4Independence, f4and f4Quality
2
, Management f4Chapter f420: f4Legal f4Liability
f4
Chapter f421: f4Assurance, f4Attestation, f4and f4Internal f4Auditing f4Services
3
, CHAPTER,1
AN f4INTRODUCTION f4 TO f4 ASSURANCE f 4 AND f4FINANCIAL f4STATEMENT f 4 AUDITING
Answers f4to f4Review,Questions
1-1 The f4study f4of f4auditing f4is f4more f4conceptual f4in f4nature f4compared f4to f4other f4accounting
f4courses. f4Rather f4than f4focusing f4on f4learning f4the f4rules, f4techniques, f4and f4computations
f4required f4to f4prepare f4finan f4cial f4statements, f4auditing f4emphasizes f4learning f4aframework f4of
f4analytical f4andlogicalskills f4to,evaluate f4the f4relevance f4and f4reliability f4of f4the f4systems f4and
f4processes f4responsible f4for f4financial f4information, f4as f4well f4as f4the f4information f4itself. f4To f4be
f4successful, f4students f4must,learn f4the f4framework f4and f4then f4learn f4to f4use f4logic f4and f4common
f4sense f4in f4applying f4auditing f4concepts f4to f4various f4circumstances f 4 and f4situations
.
Understanding f4auditing f4can f4improve f4the f4decision f4making f4ability f4of f4consultants,
f4businessma f4nagers, f4and f4accountants f4by f4providing f4a f4framework f4for f4evaluating f4the
f4usefulness f4andreliabi f4lity f4of f4information.
1-2 There f4is f4a f4demand f4for f4auditing f4in f4a f4free-
market f4economy f4because f4the f4agency f4relationship f4between f4an f4absentee f4owner f4and f4a
f4manager f4pr f4oduces f4a f4natural f4conflict f4of f4interest f4due f4to f4the f4information f4asymmetry
f4that,exists f4between f4the f4own f4er f4and f4manager. f4As f4a f4result, f4theagent,agrees f4to f4be
f4monitored f4as f4part f4of f4his/her,employment,contr f4act. f4Auditing f4appears f4to f4be f4acost-effective
f4form f4of f4monitoring.
The f4empirical f4evidence f4suggests,auditing f4was f4demanded f4prior f4to f4government
f4regulationsu f4ch f4as f4statutory f4audit f4requirements. f4Additionally, f4many f4private f4companies f4and
f4other f4entities f4not f4sub f4ject,to f4government f4auditing f4regulations f4also f4demand f4auditing.
1-3 The f4agency f4relationship f4between f4an f4owner f4and f4manager f4produces f4a f4natural
f4conflict f4of f4int f4erest f4because f4of f4differences f4in f4the f4two f4parties’ f4goals f4and f4because f4of
f4information f4asymmetrythat,e f4xists f4between f4them. f4That f4is, f4the f4manager f4generally f4has
f4more f4information f4about,the f4‘true’financial f4position f4and f4results f4of f4operations,of f4the f4entity
f4than f4the f4absentee f4owner f4does. f4If f4both f4parties f4seek f4t f4o f4maximize f4their f4own f4self-
interest, f4it,is f4likely,that,the f4manager f4will f4not f4act f4in f4the f4best f4interest f4of,the f4owner,and f4may
f4manipulate f4the f4information f4provided f4to f4the f4owner f4accordingly.
1-4 Independence f4is f4an f4important,standard f4for f4auditors. f4If f4an f4auditor f4is f4not
f4independent,of,the f4client, f4users,may f4lose f4confidence f4in f4the f4auditor’s f4ability f4to
f4report,truthfully f4on f4the f4financial f4statemen f4ts, f4and f4the f4auditor’s f4work,loses f4its f4value. f4From
f4an f4agency f4perspective, f4if f4the f4principal f4(owner) f4know f4s,that,the f4auditor f4is f4not f4independent,
f4the f4owner f4will f4not f4trust f4the f4auditor’s f4work.
Thus, f4the f4agent,will f4not,hire f4the f4auditor f4because f4the f4auditor’s f4report f4will f4not,be f4effective
f4inreducing f4i f4nformation f4risk f4from f4the f4perspective f4of f4the f4owner.
1-5 Auditing f4(broadly f4defined) f4is f4a f4systematic,process f4of f4objectively f4obtaining f4and
f4evaluatin f 4 g f4evidence f4regarding f4assertions f4about,economic f4actions f4and f4events f4to
f4ascertain f4the,degree f4of f4co f4rrespondence f4between f4those f4assertions f4and f4established
f4criteria f4and f4communicating f4the f4results f 4 to f4interested f4users.
Assurance f4is f4engagement f4in f4which f4a f4practitioner f4expresses f4a f4conclusion f4designed
f4to f4enh f4ance f4the f4degree f4of f4confidence f4of f4the f4intended f4users f4other,than f4the f4responsible
f4party f4aboutthe f4outco f4me f4of f4the f4evaluation f4or f4measurement f4of f4a f4subject,matter
4
