Solution Manual for Principles of Auditing and Other Assurance Services, 23rd Edition by Ray Whittington & Kurt Pany (McGraw-Hill, 2024)

SOLUTION MANUAL FOR
b b




Principles Of Auditing And Other Assurance Services
b b b b b b b b




23rd Edition By Ray Whittington Kurt
b b b b b b




ALL Chapters (1 - 21)
b b b b

,  Table of Contents b b




Chapter 1: The Role of the Public Accountant in the AmericanEconomy
b b b b b b b b b b




Chapter 2: Professional Standards
b b b




Chapter 3: Professional Ethics
b b b




Chapter 4: Legal Liability of CPAs
b b b b b




Chapter 5: Audit Evidence and Documentation
b b b b b




Chapter 6: Audit Planning, Understanding the Client, AssessingRisks, and Responding
b b b b b b b b b




Chapter 7: Internal Control
b b b




Chapter 8: Consideration of Internal Control in an InformationTechnology Environment
b b b b b b b b b




Chapter 9: Audit Sampling
b b b




Chapter 10: Cash and Financial Investments
b b b b b




Chapter 11: Accounts Receivable, Notes Receivable, andRevenue
b b b b b b




Chapter 12: Inventories and Cost of Goods Sold
b b b b b b b




Chapter 13: Property, Plant, and Equipment: Depreciation andDepletion
b b b b b b b




Chapter 14: Accounts Payable and Other Liabilities
b b b b b b




Chapter 15: Debt and Equity Capital
b b b b b




Chapter 16: Auditing Operations and Completing the Audit
b b b b b b b




Chapter 17: Auditors’ Reports
b b b




Chapter 18: Integrated Audits of Public Companies
b b b b b b




Chapter 19: Additional Assurance Services: Historical FinancialInformation
b b b b b b




Chapter 20: Additional Assurance Services: Other Information
b b b b b b




Chapter 21: Internal, Operational, and Compliance Auditing
b b b b b b

,CHAPTER 1 b




The Role of the b b b




b Public Accountant in the b b b




American Economy b




Review Questions
b




1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated their previously
b b b b b b b b b b b b b b


issued financial statements as a result of accounting irregularities and fraud. Especially responsible
b b b b b b b b b b b b b


werethe very visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and
b b b b b b b b b b b b b b b


constituted the largest companies in American history to do so. The extent of the accounting
b b b b b b b b b b b b b b b


irregularities and fraud being investigated and disclosed brought into question the effectiveness of
b b b b b b b b b b b b b


financial statement audits. In addition, the criminal conviction of Arthur Andersen, LLP, one of the
b b b b b b b b b b b b b b b


then Big 5 accounting firms, on charges of destroying documents related to the Enron case brought
b b b b b b b b b b b b b b b b


into question the ethics standards of the profession.
b b b b b b b b




1-2 Assurance services are professional services that enhance the quality of information, or its context, for
b b b b b b b b b b b b b b


decision-making. The two types are: (a) those that increase the reliability of information and (b) those
b b b b b b b b b b b b b b b b


that involve putting information in a form or context that facilitates decision-making.
b b b b b b b b b b b b




1-3 A financial statement audit is, by far, the most common type of attest engagement. The overall
b b b b b b b b b b b b b b b


assertion,made by management, most frequently is that the financial statements follow generally
b b b b b b b b b b b b b


accepted accounting principles.
b b b




1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock
b b b b b b b b b b b b b b b b b


exchange and by the rules of the Securities and Exchange Commission to provide an audit report with
b b b b b b b b b b b b b b b b b


theannual financial statements furnished to its stockholders. It also is required to engage the auditors to
b b b b b b b b b b b b b b b b b


provide an opinion on its internal control. Apart from legal requirements, however, a large listed
b b b b b b b b b b b b b b b


corporation recognizes that it must maintain investor confidence in the reliability of its financial
b b b b b b b b b b b b b b


statements and internal control over financial reporting if it is to continue to be able to secure capital
b b b b b b b b b b b b b b b b b b


from the public. The report by a firm of certified public accountants adds credibility to the financial
b b b b b b b b b b b b b b b b b


statements prepared by the corporation. When a small family-owned enterprise elects to have an audit,
b b b b b b b b b b b b b b b


the purpose usually is to use the auditors' report to support an application for a bank loan.
b b b b b b b b b b b b b b b b b

, 1-5 A report by an independent public accountant concerning the fairness of a company's financial
b b b b b b b b b b b b b


statementsis commonly required in the following situations:
b b b b b b b b




(1) Application for a bank loan. b b b b


(2) Establishing credit for purchase of merchandise, equipment, or other assets. b b b b b b b b b


(3) Reporting operating results, financial position, and cash flows to absentee owners
b b b b b b b b b b


b(stockholdersor partners). b b


(4) Issuance of securities by a corporation. b b b b b


(5) Annual financial statements by a corporation with securities listed on a stock exchange or
b b b b b b b b b b b b b


btradedover the counter. b b b


(6) Sale of an ongoing business.
b b b b


(7) Termination of a partnership. b b b




1-6 To add credibility to financial statements is to increase the likelihood that they have been prepared
b b b b b b b b b b b b b b b


following the appropriate criteria, usually generally accepted accounting principles. As such, an
b b b b b b b b b b b b


increasein credibility results in financial statements that can be believed and relied upon by third
b b b b b b b b b b b b b b b b


parties.
b




1-7 Business risk is the risk that the investment will be impaired because a company invested in is unable
b b b b b b b b b b b b b b b b b


tomeet its financial obligations due to economic conditions or poor management decisions.
b b b b b b b b b b b b b


Information risk is the risk that the information used to assess business risk is not accurate. Auditors
b b b b b b b b b b b b b b b b b


can directly reduce information risk, but have only limited effect on business risk.
b b b b b b b b b b b b b




1-8 At the beginning of the century, the principal objective of auditing was the prevention and detection of
b b b b b b b b b b b b b b b b


fraud. Audit work centered on the balance sheet, because the income statement was regarded as highly
b b b b b b b b b b b b b b b b


confidential and not for public disclosure. Today, the principal objective of auditing is to form an
b b b b b b b b b b b b b b b b


opinion on the fairness of financial statements and their conformity with generally accepted accounting
b b b b b b b b b b b b b b


principles. But the professional standards also require that an audit be designed to provide reasonable
b b b b b b b b b b b b b b b


assurance of detecting material misstatements, due to errors or fraud. Particular emphasis is placed
b b b b b b b b b b b b b b


on the income statement which is of great importance to investors. Auditing today also has the
b b b b b b b b b b b b b b b b


objectives ofmeeting the requirements of the Securities and Exchange Commission (SEC) and the
b b b b b b b b b b b b b b


Public Company Accounting Oversight Board for public companies.
b b b b b b b b




1-9 The statement is incorrect. The increasing integrated databases of today, along with available
b b b b b b b b b b b b


auditprocedures make audited entire populations a possibility in many situations.
b b b b b b b b b b b




1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of an
b b b b b b b b b b b b b b b


organization. It involves more subjective judgments than a compliance audit or an audit of financial
b b b b b b b b b b b b b b b


statements because the criteria of effectiveness and efficiency of departmental performance are not
b b b b b b b b b b b b b


asclearly established as are many laws and regulations or generally accepted accounting principles.
b b b b b b b b b b b b b b


The report prepared after completion of an operational audit is usually directed to
b b b b b b b b b b b b


managementof the organization in which the audit work was done.
b b b b b b b b b b b




1-11 A compliance audit is an audit to determine whether financial reports or other assertions are in
b b b b b b b b b b b b b b b


compliance with established criteria. The necessary ingredients are verifiable data and the existence of
b b b b b b b b b b b b b b


standards established by an authoritative body. An operational audit, on the other hand, is a review of
b b b b b b b b b b b b b b b b b


adepartment or other unit of a business or governmental organization to measure the effectiveness
b b b b b b b b b b b b b b b


and efficiency of operations. Internal auditors often perform operational audits as do auditors
b b b b b b b b b b b b b


employed by the Government Accountability Office (GAO) of the federal government.
b b b b b b b b b b b




1-12 Internal auditors must be independent of the department heads and other line executives whose work
b b b b b b b b b b b b b b


btheyreview. However, internal auditors are not independent in the same sense as a public accounting
b b b b b b b b b b b b b b b