SOLUTION MANUAL FOR PRINCIPLES OF
AUDITING AND OTHER ASSURANCE SERVICES
23RD EDITION BY RAY WHITTINGTON KURT
ALL CHAPTERS (1 - 21)
,TABLE OF CONTENTS
1. Chapter 1: The Role Of The Public Accountant In The Americaneconomy
2. Chapter 2: Professional Standards
3. Chapter 3: Professional Ethics
4. Chapter 4: Legal Liability Of Cpas
5. Chapter 5: Audit Evidence And Documentation
6. Chapter 6: Audit Planning, Understanding The Client, Assessingrisks, And Responding
7. Chapter 7: Internal Control
8. Chapter 8: Consideration Of Internal Control In An Informationtechnology Environment
9. Chapter 9: Audit Sampling
10. Chapter 10: Cash And Financial Investments
11. Chapter 11: Accounts Receivable, Notes Receivable, Andrevenue
12. Chapter 12: Inventories And Cost Of Goods Sold
13. Chapter 13: Property, Plant, And Equipment: Depreciation Anddepletion
14. Chapter 14: Accounts Payable And Other Liabilities
15. Chapter 15: Debt And Equity Capital
16. Chapter 16: Auditing Operations And Completing The Audit
17. Chapter 17: Auditors’ Reports
18. Chapter 18: Integrated Audits Of Public Companies
19. Chapter 19: Additional Assurance Services: Historical Financialinformation
20. Chapter 20: Additional Assurance Services: Other Information
21. Chapter 21: Internal, Operational, And Compliance Auditing
,Chapter 1
THE ROLE OF THE PUBLIC ACCOUNTANT IN THE
AMERICAN ECONOMY
REVIEW QUEST IONS
1-1 The ―Crisis Of Credibility‖ Largely Arose From The Number Of Companies That Restated Their
Previously Issued Financial Statements As A Result Of Accounting Irregularities And Fraud.
Especially Responsible Were The Very Visible Enron And Worldcom Fraud CASEs. Both
Companies Filed For Bankruptcy And Constituted The Largest Companies In American History
To Do So. The Extent Of The Accounting Irregularities And Fraud Being Investigated And
Disclosed Brought Into Question The Effectiveness Of Financial Statement Audits. In Addition,
The Criminal Conviction Of Arthur Andersen, Llp, One Of The Then Big 5 Accounting Firms, On
Charges Of Destroying Documents Related To The Enron CASE Brought Into Question The
Ethics Standards Of The Profession.
1-2 Assurance Services Are Professional Services That Enhance The Quality Of Information, Or
Its Context, For Decision-Making. The Two Types Are: (A) Those That Increase The
Reliability Of Information And (B) Those That Involve Putting Information In A Form Or
Context That Facilitates Decision-Making.
1-3 A Financial Statement Audit Is, By Far, The Most Common Type Of Attest Engagement. The
Overall Assertion,Made By Management, Most Frequently Is That The Financial Statements
Follow Generally Accepted Accounting Principles.
1-4 A Large Corporation With Securities Listed On A Stock Exchange Is Required By The Rules Of
The Stock Exchange And By The Rules Of The Securities And Exchange Commission To Provide
An Audit Report With TheAnnual Financial Statements Furnished To Its Stockholders. It Also
Is Required To Engage The Auditors To Provide An Opinion On Its Internal Control. Apart
From Legal Requirements, However, A Large Listed Corporation Recognizes That It Must
Maintain Investor Confidence In The Reliability Of Its Financial Statements And Internal
Control Over Financial Reporting If It Is To Continue To Be Able To Secure Capital From The
Public. The Report By A Firm Of Certified Public Accountants Adds Credibility To The Financial
Statements Prepared By The Corporation. When A Small Family-Owned Enterprise Elects To
Have An Audit, The Purpose Usually Is To Use The Auditors' Report To Support An Application
For A Bank Loan.
, 1-5 A Report By An Independent Public Accountant Concerning The Fairness Of A Company's
Financial StatementsIs Commonly Required In The Following Situations:
(1) Application For A Bank Loan.
(2) Establishing Credit For Purchase Of Merchandise, Equipment, Or Other Assets.
(3) Reporting Operating Results, Financial Position, And Cash Flows To Absentee Owners
(StockholdersOr Partners).
(4) Issuance Of Securities By A Corporation.
(5) Annual Financial Statements By A Corporation With Securities Listed On A Stock
Exchange Or TradedOver The Counter.
(6) Sale Of An Ongoing Business.
(7) Termination Of A Partnership.
1-6 To Add Credibility To Financial Statements Is To Increase The Likelihood That They Have Been
Prepared Following The Appropriate Criteria, Usually Generally Accepted Accounting
Principles. As Such, An IncreaseIn Credibility Results In Financial Statements That Can Be
Believed And Relied Upon By Third Parties.
1-7 Business Risk Is The Risk That The Investment Will Be Impaired Because A Company Invested
In Is Unable To Meet Its Financial Obligations Due To Economic Conditions Or Poor
Management Decisions. Information Risk Is The Risk That The Information Used To Assess
Business Risk Is Not Accurate. Auditors Can Directly Reduce Information Risk, But Have
Only Limited Effect On Business Risk.
1-8 At The Beginning Of The Century, The Principal Objective Of Auditing Was The Prevention And
Detection Of Fraud. Audit Work Centered On The Balance Sheet, Because The Income
Statement Was Regarded As Highly Confidential And Not For Public Disclosure. Today, The
Principal Objective Of Auditing Is To Form An Opinion On The Fairness Of Financial
Statements And Their Conformity With Generally Accepted Accounting Principles. But The
Professional Standards Also Require That An Audit Be Designed To Provide Reasonable
Assurance Of Detecting Material Misstatements, Due To Errors Or Fraud. Particular Emphasis
Is Placed On The Income Statement Which Is Of Great Importance To Investors. Auditing
Today Also Has The Objectives Of Meeting The Requirements Of The Securities And Exchange
Commission (Sec) And The Public Company Accounting Oversight Board For Public
Companies.
1-9 The Statement Is Incorrect. The Increasing Integrated Databases Of Today, Along With
Available AuditProcedures Make Audited Entire Populations A Possibility In Many
Situations.
1-10 An Operational Audit Attempts To Measure The Effectiveness And Efficiency Of A Specific
Unit Of An Organization. It Involves More Subjective Judgments Than A Compliance Audit
Or An Audit Of Financial Statements Because The Criteria Of Effectiveness And Efficiency
Of Departmental Performance Are Not AsClearly Established As Are Many Laws And
Regulations Or Generally Accepted Accounting Principles.
The Report Prepared After Completion Of An Operational Audit Is Usually Directed To
Management Of The Organization In Which The Audit Work Was Done.
1-11 A Compliance Audit Is An Audit To Determine Whether Financial Reports Or Other Assertions
Are In Compliance With Established Criteria. The Necessary Ingredients Are Verifiable Data
And The Existence Of Standards Established By An Authoritative Body. An Operational Audit,
On The Other Hand, Is A Review Of A Department Or Other Unit Of A Business Or
Governmental Organization To Measure The Effectiveness And Efficiency Of Operations.
AUDITING AND OTHER ASSURANCE SERVICES
23RD EDITION BY RAY WHITTINGTON KURT
ALL CHAPTERS (1 - 21)
,TABLE OF CONTENTS
1. Chapter 1: The Role Of The Public Accountant In The Americaneconomy
2. Chapter 2: Professional Standards
3. Chapter 3: Professional Ethics
4. Chapter 4: Legal Liability Of Cpas
5. Chapter 5: Audit Evidence And Documentation
6. Chapter 6: Audit Planning, Understanding The Client, Assessingrisks, And Responding
7. Chapter 7: Internal Control
8. Chapter 8: Consideration Of Internal Control In An Informationtechnology Environment
9. Chapter 9: Audit Sampling
10. Chapter 10: Cash And Financial Investments
11. Chapter 11: Accounts Receivable, Notes Receivable, Andrevenue
12. Chapter 12: Inventories And Cost Of Goods Sold
13. Chapter 13: Property, Plant, And Equipment: Depreciation Anddepletion
14. Chapter 14: Accounts Payable And Other Liabilities
15. Chapter 15: Debt And Equity Capital
16. Chapter 16: Auditing Operations And Completing The Audit
17. Chapter 17: Auditors’ Reports
18. Chapter 18: Integrated Audits Of Public Companies
19. Chapter 19: Additional Assurance Services: Historical Financialinformation
20. Chapter 20: Additional Assurance Services: Other Information
21. Chapter 21: Internal, Operational, And Compliance Auditing
,Chapter 1
THE ROLE OF THE PUBLIC ACCOUNTANT IN THE
AMERICAN ECONOMY
REVIEW QUEST IONS
1-1 The ―Crisis Of Credibility‖ Largely Arose From The Number Of Companies That Restated Their
Previously Issued Financial Statements As A Result Of Accounting Irregularities And Fraud.
Especially Responsible Were The Very Visible Enron And Worldcom Fraud CASEs. Both
Companies Filed For Bankruptcy And Constituted The Largest Companies In American History
To Do So. The Extent Of The Accounting Irregularities And Fraud Being Investigated And
Disclosed Brought Into Question The Effectiveness Of Financial Statement Audits. In Addition,
The Criminal Conviction Of Arthur Andersen, Llp, One Of The Then Big 5 Accounting Firms, On
Charges Of Destroying Documents Related To The Enron CASE Brought Into Question The
Ethics Standards Of The Profession.
1-2 Assurance Services Are Professional Services That Enhance The Quality Of Information, Or
Its Context, For Decision-Making. The Two Types Are: (A) Those That Increase The
Reliability Of Information And (B) Those That Involve Putting Information In A Form Or
Context That Facilitates Decision-Making.
1-3 A Financial Statement Audit Is, By Far, The Most Common Type Of Attest Engagement. The
Overall Assertion,Made By Management, Most Frequently Is That The Financial Statements
Follow Generally Accepted Accounting Principles.
1-4 A Large Corporation With Securities Listed On A Stock Exchange Is Required By The Rules Of
The Stock Exchange And By The Rules Of The Securities And Exchange Commission To Provide
An Audit Report With TheAnnual Financial Statements Furnished To Its Stockholders. It Also
Is Required To Engage The Auditors To Provide An Opinion On Its Internal Control. Apart
From Legal Requirements, However, A Large Listed Corporation Recognizes That It Must
Maintain Investor Confidence In The Reliability Of Its Financial Statements And Internal
Control Over Financial Reporting If It Is To Continue To Be Able To Secure Capital From The
Public. The Report By A Firm Of Certified Public Accountants Adds Credibility To The Financial
Statements Prepared By The Corporation. When A Small Family-Owned Enterprise Elects To
Have An Audit, The Purpose Usually Is To Use The Auditors' Report To Support An Application
For A Bank Loan.
, 1-5 A Report By An Independent Public Accountant Concerning The Fairness Of A Company's
Financial StatementsIs Commonly Required In The Following Situations:
(1) Application For A Bank Loan.
(2) Establishing Credit For Purchase Of Merchandise, Equipment, Or Other Assets.
(3) Reporting Operating Results, Financial Position, And Cash Flows To Absentee Owners
(StockholdersOr Partners).
(4) Issuance Of Securities By A Corporation.
(5) Annual Financial Statements By A Corporation With Securities Listed On A Stock
Exchange Or TradedOver The Counter.
(6) Sale Of An Ongoing Business.
(7) Termination Of A Partnership.
1-6 To Add Credibility To Financial Statements Is To Increase The Likelihood That They Have Been
Prepared Following The Appropriate Criteria, Usually Generally Accepted Accounting
Principles. As Such, An IncreaseIn Credibility Results In Financial Statements That Can Be
Believed And Relied Upon By Third Parties.
1-7 Business Risk Is The Risk That The Investment Will Be Impaired Because A Company Invested
In Is Unable To Meet Its Financial Obligations Due To Economic Conditions Or Poor
Management Decisions. Information Risk Is The Risk That The Information Used To Assess
Business Risk Is Not Accurate. Auditors Can Directly Reduce Information Risk, But Have
Only Limited Effect On Business Risk.
1-8 At The Beginning Of The Century, The Principal Objective Of Auditing Was The Prevention And
Detection Of Fraud. Audit Work Centered On The Balance Sheet, Because The Income
Statement Was Regarded As Highly Confidential And Not For Public Disclosure. Today, The
Principal Objective Of Auditing Is To Form An Opinion On The Fairness Of Financial
Statements And Their Conformity With Generally Accepted Accounting Principles. But The
Professional Standards Also Require That An Audit Be Designed To Provide Reasonable
Assurance Of Detecting Material Misstatements, Due To Errors Or Fraud. Particular Emphasis
Is Placed On The Income Statement Which Is Of Great Importance To Investors. Auditing
Today Also Has The Objectives Of Meeting The Requirements Of The Securities And Exchange
Commission (Sec) And The Public Company Accounting Oversight Board For Public
Companies.
1-9 The Statement Is Incorrect. The Increasing Integrated Databases Of Today, Along With
Available AuditProcedures Make Audited Entire Populations A Possibility In Many
Situations.
1-10 An Operational Audit Attempts To Measure The Effectiveness And Efficiency Of A Specific
Unit Of An Organization. It Involves More Subjective Judgments Than A Compliance Audit
Or An Audit Of Financial Statements Because The Criteria Of Effectiveness And Efficiency
Of Departmental Performance Are Not AsClearly Established As Are Many Laws And
Regulations Or Generally Accepted Accounting Principles.
The Report Prepared After Completion Of An Operational Audit Is Usually Directed To
Management Of The Organization In Which The Audit Work Was Done.
1-11 A Compliance Audit Is An Audit To Determine Whether Financial Reports Or Other Assertions
Are In Compliance With Established Criteria. The Necessary Ingredients Are Verifiable Data
And The Existence Of Standards Established By An Authoritative Body. An Operational Audit,
On The Other Hand, Is A Review Of A Department Or Other Unit Of A Business Or
Governmental Organization To Measure The Effectiveness And Efficiency Of Operations.
