Auditing & Assurance Services
A Systematic Approach 12th Edition
ST
SOLUTIONS
UV
IA
MANUAL
_A
PP
William F. Messier Jr.
Steven M. Glover
RO
Douglas F. Prawitt
────────────────────────────────────────────────────
VE
Comprehensive Solutions Manual for Instructors
and Students
D?
© William F. Messier Jr., Steven M. Glover & Douglas F. Prawitt. All rights reserved.
Reproduction or distribution without permission is prohibited.
?
© Successhands
, Solutions Manual for Auditing & Assurance Services: A Systematic Approach (12th
Edition)
William F. Messier Jr., Steven M. Glover & Douglas F. Prawitt
ISBN: 9781264100675
ST
PART 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT
AUDITING
Chapter 1. An Introduction to Assurance and Financial Statement Auditing
Chapter 2. The Financial Statement Auditing Environment
UV
PART 2: AUDIT PLANNING AND BASIC AUDITING CONCEPTS
Chapter 3. Audit Planning, Types of Audit Tests, and Materiality
Chapter 4. Risk Assessment
Chapter 5. Evidence and Documentation
IA
PART 3: UNDERSTANDING AND AUDITING INTERNAL CONTROL
Chapter 6. Internal Control in a Financial Statement Audit
Chapter 7. Auditing Internal Control over Financial Reporting
_A
PART 4: STATISTICAL AND NONSTATISTICAL SAMPLING TOOLS FOR
AUDITING
Chapter 8. Audit Sampling—An Overview and Application to Tests of Controls
Chapter 9. Audit Sampling—An Application to Substantive Tests of Account Balances
PP
PART 5: AUDITING BUSINESS PROCESSES
Chapter 10. Auditing the Revenue Process
Chapter 11. Auditing the Purchasing Process
Chapter 12. Auditing the Human Resource Management Process
RO
Chapter 13. Auditing the Inventory Management Process
Chapter 14. Auditing the Financing/Investing Process—Prepaid Expenses, Intangible
Assets, and Property, Plant, and Equipment
Chapter 15. Auditing the Financing/Investing Process—Long-Term Liabilities,
Stockholders’ Equity, and Income Statement Accounts
Chapter 16. Auditing the Financing/Investing Process—Cash and Investments
VE
PART 6: COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES
Chapter 17. Completing the Audit Engagement
Chapter 18. Reports on Audited Financial Statements
D?
PART 7: PROFESSIONAL RESPONSIBILITIES
Chapter 19. Professional Conduct, Independence, and Quality Management
Chapter 20. Legal Liability
PART 8: ASSURANCE, ATTESTATION, AND INTERNAL AUDITING SERVICES
?
Chapter 21. Assurance, Attestation, and Internal Auditing Services
© Successhands
, Chapter 17 - Completing the Audit Engagement
Solution Manual For
Auditing & Assurance Services A Systematic Approach 12e Messier
Chapter 1-21
SMT
CHAPTER 1
AN INTRODUCTION TO ASSURANCE AND FINANCIAL
UEDV
STATEMENT AUDITING
Answers to Review Questions
1-1 The study of auditing is more conceptual in nature as compared to other accounting
ICAO
courses. Rather than focusing on learning the rules, techniques, and computations required
to prepare financial statements, auditing emphasizes learning a framework of analytical
and logical skills. This framework enables auditors to evaluate the relevance and
reliability of the systems and processes responsible for financial information as well as the
_NA
information itself. To be successful, students must learn the framework and then learn to
use logic and common sense in applying auditing concepts to various circumstances and
situations. Understanding auditing can improve the decision-making ability of consultants,
business managers, and accountants by providing a framework for evaluating the
usefulness and reliability of information—an important task in many different business
PNPO
contexts.
1-2 There is a demand for auditing in a free-market economy because the agency relationship
between an absentee owner and a manager produces a natural conflict of interest due to
the information asymmetry that exists between these two parties. As a result, the agent
RISO
agrees to be monitored as part of his/her employment contract. Auditing appears to be a
cost-effective form of monitoring. The empirical evidence suggests that auditing was
demanded prior to government regulation. In 1926, before it was required by law,
independent auditors audited 82 percent of the companies on the New York Stock
Exchange. Additionally, many private companies and municipalities not subject to
SVE
government regulations, such as the Securities Act of 1933 and Securities Exchange Act
of 1934, also purchase various forms of auditing and assurance services. Many private
companies seek out financial statement audits in order to secure financing for their
EDU
operations. Companies preparing to go public also benefit from having an audit.
1-3 The agency relationship between an owner and manager produces a natural conflict of
interest because of differences in the two parties’ goals and because of the information
asymmetry that exists between them. That is, the manager likely has different goals than
?R?
the owner, and generally has more information about the "true" financial position and
results of operations of the entity than the absentee owner does. If both parties seek to
maximize their own self-interest, the manager may not act in the best interest of the owner
and may manipulate the information provided to the owner accordingly.
17-1
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
1-4 Independence is a bedrock principle for auditors. If an auditor is not independent of the
client, users may lose confidence in the auditor’s ability to report objectively and
truthfully on the financial statements, and the auditor’s work loses its value. From an
agency perspective, if the principal (owner) knows that the auditor is not independent, the
SMT
owner will not trust the auditor’s work. Thus, the agent will not hire the auditor because
the auditor’s report will not be effective in reducing information risk from the perspective
of the owner. Auditor independence is also a regulatory requirement.
1-5 Auditing (broadly defined) is a systematic process of (1) objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain
UEDV
the degree of correspondence between those assertions and established criteria and (2)
communicating the results to interested users.
Attest services occur when a practitioner issues a report on subject matter, or an assertion
about subject matter, that is the responsibility of another party.
Assurance services are independent professional services that improve the quality of
ICAO
information, or its context, for decision makers.
1-6 Auditing is a specific form of ―attest service,‖ which in turn is a specific category of
―assurance service.‖ In other words, the phrase ―assurance services‖ constitutes the
_NA
broadest category of professional services provided by CPAs that serve to improve the
quality or context of information for decision making for other parties. Attest services
constitute a more specific category of assurance that CPAs can provide. These services are
intended to reduce information risk to parties relying on information provided by a party
that is creating, or making assertions about, subject matter of interest. CPAs can provide
attest services relating to a wide variety of subject matter (or assertions about that subject
PNPO
matter) to reduce the information risk to third parties. One such subject matter is a set of
financial statements. When a CPA provides a very in-depth, detailed attest service that
follows relevant standards to constitute a complete examination of a set of financial
statements and related assertions, this is called a financial statement ―audit.‖
RISO
1-7 Audit risk is defined as the risk that the auditor may unknowingly fail to appropriately
modify his or her opinion on financial statements that are materially misstated (AS 1101).
Materiality is defined as "the magnitude of an omission or misstatement of accounting
information that, in the light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the information would have been changed or
SVE
influenced by the omission or misstatement" (FASB Statement of Financial Accounting
Concepts No. 8, Chapter 3: Qualitative Characteristics of Useful Accounting Information,
which is pending revision at the time of the writing of this book per the Board’s
EDU
November 2017 decision to revert to a definition of materiality similar to the one found in
superseded Concept No. 2).
The concept of materiality is reflected in the wording of the auditor's standard audit
report through the phrase "the financial statements present fairly in all material respects."
This is the manner in which the auditor communicates the notion of materiality to the
?R?
users of the auditor's report. The auditor's standard report states that the audit provides
only reasonable assurance that the financial statements do not contain material
misstatements. The term "reasonable assurance" implies that there is some risk that a
material misstatement could be present in the financial statements and the auditor will fail
17-2
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
A Systematic Approach 12th Edition
ST
SOLUTIONS
UV
IA
MANUAL
_A
PP
William F. Messier Jr.
Steven M. Glover
RO
Douglas F. Prawitt
────────────────────────────────────────────────────
VE
Comprehensive Solutions Manual for Instructors
and Students
D?
© William F. Messier Jr., Steven M. Glover & Douglas F. Prawitt. All rights reserved.
Reproduction or distribution without permission is prohibited.
?
© Successhands
, Solutions Manual for Auditing & Assurance Services: A Systematic Approach (12th
Edition)
William F. Messier Jr., Steven M. Glover & Douglas F. Prawitt
ISBN: 9781264100675
ST
PART 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT
AUDITING
Chapter 1. An Introduction to Assurance and Financial Statement Auditing
Chapter 2. The Financial Statement Auditing Environment
UV
PART 2: AUDIT PLANNING AND BASIC AUDITING CONCEPTS
Chapter 3. Audit Planning, Types of Audit Tests, and Materiality
Chapter 4. Risk Assessment
Chapter 5. Evidence and Documentation
IA
PART 3: UNDERSTANDING AND AUDITING INTERNAL CONTROL
Chapter 6. Internal Control in a Financial Statement Audit
Chapter 7. Auditing Internal Control over Financial Reporting
_A
PART 4: STATISTICAL AND NONSTATISTICAL SAMPLING TOOLS FOR
AUDITING
Chapter 8. Audit Sampling—An Overview and Application to Tests of Controls
Chapter 9. Audit Sampling—An Application to Substantive Tests of Account Balances
PP
PART 5: AUDITING BUSINESS PROCESSES
Chapter 10. Auditing the Revenue Process
Chapter 11. Auditing the Purchasing Process
Chapter 12. Auditing the Human Resource Management Process
RO
Chapter 13. Auditing the Inventory Management Process
Chapter 14. Auditing the Financing/Investing Process—Prepaid Expenses, Intangible
Assets, and Property, Plant, and Equipment
Chapter 15. Auditing the Financing/Investing Process—Long-Term Liabilities,
Stockholders’ Equity, and Income Statement Accounts
Chapter 16. Auditing the Financing/Investing Process—Cash and Investments
VE
PART 6: COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES
Chapter 17. Completing the Audit Engagement
Chapter 18. Reports on Audited Financial Statements
D?
PART 7: PROFESSIONAL RESPONSIBILITIES
Chapter 19. Professional Conduct, Independence, and Quality Management
Chapter 20. Legal Liability
PART 8: ASSURANCE, ATTESTATION, AND INTERNAL AUDITING SERVICES
?
Chapter 21. Assurance, Attestation, and Internal Auditing Services
© Successhands
, Chapter 17 - Completing the Audit Engagement
Solution Manual For
Auditing & Assurance Services A Systematic Approach 12e Messier
Chapter 1-21
SMT
CHAPTER 1
AN INTRODUCTION TO ASSURANCE AND FINANCIAL
UEDV
STATEMENT AUDITING
Answers to Review Questions
1-1 The study of auditing is more conceptual in nature as compared to other accounting
ICAO
courses. Rather than focusing on learning the rules, techniques, and computations required
to prepare financial statements, auditing emphasizes learning a framework of analytical
and logical skills. This framework enables auditors to evaluate the relevance and
reliability of the systems and processes responsible for financial information as well as the
_NA
information itself. To be successful, students must learn the framework and then learn to
use logic and common sense in applying auditing concepts to various circumstances and
situations. Understanding auditing can improve the decision-making ability of consultants,
business managers, and accountants by providing a framework for evaluating the
usefulness and reliability of information—an important task in many different business
PNPO
contexts.
1-2 There is a demand for auditing in a free-market economy because the agency relationship
between an absentee owner and a manager produces a natural conflict of interest due to
the information asymmetry that exists between these two parties. As a result, the agent
RISO
agrees to be monitored as part of his/her employment contract. Auditing appears to be a
cost-effective form of monitoring. The empirical evidence suggests that auditing was
demanded prior to government regulation. In 1926, before it was required by law,
independent auditors audited 82 percent of the companies on the New York Stock
Exchange. Additionally, many private companies and municipalities not subject to
SVE
government regulations, such as the Securities Act of 1933 and Securities Exchange Act
of 1934, also purchase various forms of auditing and assurance services. Many private
companies seek out financial statement audits in order to secure financing for their
EDU
operations. Companies preparing to go public also benefit from having an audit.
1-3 The agency relationship between an owner and manager produces a natural conflict of
interest because of differences in the two parties’ goals and because of the information
asymmetry that exists between them. That is, the manager likely has different goals than
?R?
the owner, and generally has more information about the "true" financial position and
results of operations of the entity than the absentee owner does. If both parties seek to
maximize their own self-interest, the manager may not act in the best interest of the owner
and may manipulate the information provided to the owner accordingly.
17-1
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
1-4 Independence is a bedrock principle for auditors. If an auditor is not independent of the
client, users may lose confidence in the auditor’s ability to report objectively and
truthfully on the financial statements, and the auditor’s work loses its value. From an
agency perspective, if the principal (owner) knows that the auditor is not independent, the
SMT
owner will not trust the auditor’s work. Thus, the agent will not hire the auditor because
the auditor’s report will not be effective in reducing information risk from the perspective
of the owner. Auditor independence is also a regulatory requirement.
1-5 Auditing (broadly defined) is a systematic process of (1) objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain
UEDV
the degree of correspondence between those assertions and established criteria and (2)
communicating the results to interested users.
Attest services occur when a practitioner issues a report on subject matter, or an assertion
about subject matter, that is the responsibility of another party.
Assurance services are independent professional services that improve the quality of
ICAO
information, or its context, for decision makers.
1-6 Auditing is a specific form of ―attest service,‖ which in turn is a specific category of
―assurance service.‖ In other words, the phrase ―assurance services‖ constitutes the
_NA
broadest category of professional services provided by CPAs that serve to improve the
quality or context of information for decision making for other parties. Attest services
constitute a more specific category of assurance that CPAs can provide. These services are
intended to reduce information risk to parties relying on information provided by a party
that is creating, or making assertions about, subject matter of interest. CPAs can provide
attest services relating to a wide variety of subject matter (or assertions about that subject
PNPO
matter) to reduce the information risk to third parties. One such subject matter is a set of
financial statements. When a CPA provides a very in-depth, detailed attest service that
follows relevant standards to constitute a complete examination of a set of financial
statements and related assertions, this is called a financial statement ―audit.‖
RISO
1-7 Audit risk is defined as the risk that the auditor may unknowingly fail to appropriately
modify his or her opinion on financial statements that are materially misstated (AS 1101).
Materiality is defined as "the magnitude of an omission or misstatement of accounting
information that, in the light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the information would have been changed or
SVE
influenced by the omission or misstatement" (FASB Statement of Financial Accounting
Concepts No. 8, Chapter 3: Qualitative Characteristics of Useful Accounting Information,
which is pending revision at the time of the writing of this book per the Board’s
EDU
November 2017 decision to revert to a definition of materiality similar to the one found in
superseded Concept No. 2).
The concept of materiality is reflected in the wording of the auditor's standard audit
report through the phrase "the financial statements present fairly in all material respects."
This is the manner in which the auditor communicates the notion of materiality to the
?R?
users of the auditor's report. The auditor's standard report states that the audit provides
only reasonable assurance that the financial statements do not contain material
misstatements. The term "reasonable assurance" implies that there is some risk that a
material misstatement could be present in the financial statements and the auditor will fail
17-2
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
