Solutions manual to accompany Modern Auditing and Assurance Services 6e
without experience in the field.Moreover, law exams tend to be long and require detailed written responses. These exams test the student’s ability to construct well-organized, persuasive
arguments within a limited amount of time. Many law students report difficulty with time management, as they must balance legal analysis with the need for coherent and concise
writing.6.3. Challenges in Mathematics ExamsMathematics exams present their own unique set of challenges. The primary difficulty lies Business EducationBusiness education prepares
students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program
SOLUTIONS MANUAL
to accompany
MODERN AUDITING
&
ASSURANCE SERVICES
6th edition
Prepared by
Philomena Leung, Paul Coram, Barry Cooper and
Peter Richardson
© John Wiley & Sons Australia, Ltd 2015
, Chapter 1: An overview of auditing
Chapter 1: An overview of auditing
without experience in the field.Moreover, law exams tend to be long and require detailed written responses. These exams test the student’s ability to construct well-organized, persuasive
arguments within a limited amount of time. Many law students report difficulty with time management, as they must balance legal analysis with the need for coherent and concise
writing.6.3. Challenges in Mathematics ExamsMathematics exams present their own unique set of challenges. The primary difficulty lies Business EducationBusiness education prepares
students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program
Review questions
1.11 Describe the nature of an audit.
An auditor sets out to achieve enhanced credibility of information disclosed to increase
reliability for the users of the financial statements. A definition from the Committee on Basic
Auditing is as follows:
An audit is a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria and communicating
the results to interested users.
1.12 What does an independent auditor do during a financial report
audit?
The auditor will provide a written opinion to the shareholders of a company as to the truth
and fairness of the financial report prepared by management. This includes ensuring that the
financial report is free from material error and is prepared in accordance with relevant
accounting standards and corporate law; in Australia this means compliance with the
Corporations Act and Australian Financial Reporting Standards.
The auditor performs audit procedures, generally performing tests on samples of the
company’s transactions and balances, to provide sufficient and appropriate evidence upon
which to rely in forming the audit opinion. Where the company has an effective internal
control system that prevents, detects and corrects potential accounting and reporting errors,
the auditor may choose to rely on those internal controls and reduce the amount of detailed
testing performed. Where there are no effective internal controls in place the auditor will
perform extensive tests of the company’s transactions and balances.
Once the audit work is completed the evidence is assessed and judgments are made as to the
possibility of the financial report containing material errors. If the auditor believes that the
financial report contains material errors the management will be requested to make any
necessary amendments to the report. If management refuse to amend the report the auditor
will consider the need to modify the audit opinion to highlight the errors to the users of the
financial report.
1.13 Explain how agency theory results in a demand for auditing.
In an agency relationship, investors (as principals) entrust their resources to managers (as
agents). The agent’s self-interest is expected to diverge from the principals’ interest, giving
rise to agency costs. A consequence of this agency problem is that investors will ‘price
, Solutions manual to accompany Modern Auditing and Assurance Services 6e
protect’ themselves on the assumption that managers are acting for themselves. It is therefore
a rational response that there is a demand for a financial statement audit to verify the
assertions made by management.
without experience in the field.Moreover, law exams tend to be long and require detailed written responses. These exams test the student’s ability to construct well-organized, persuasive
arguments within a limited amount of time. Many law students report difficulty with time management, as they must balance legal analysis with the need for coherent and concise
writing.6.3. Challenges in Mathematics ExamsMathematics exams present their own unique set of challenges. The primary difficulty lies Business EducationBusiness education prepares
students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program
1.14 How has the accounting profession’s role changed in recent years?
What does the accounting profession currently have responsibility
for?
From the earliest days of the accounting profession an important role was to provide a ‘brand
name’ to illustrate quality. This still has an important value today. Some of the specific parts
of the accounting profession’s role have included:
· developing standards of practice through research and issuance of standards, professional
education, and the establishment of rules of conduct for members
· ensuring professional conduct and effective self-regulation of quality of service
· maintaining standards of qualifications through accredited courses, examinations, and
practical experience for accountants seeking to become members.
The last ten years have seen a significant change in the role of the accounting profession in
Australia. This has been, in part, a response to some of the corporate scandals of the early
2000s where there was a large amount of trust lost in the accounting profession and
consequently some of their previous responsibilities have been taken over by the government.
The responsibility for accounting and auditing standard setting for companies that report
under the Corporations Act is now under government control. The regulation of accountants
involved in the corporate reporting world is now mainly performed by ASIC. The accounting
professions ongoing responsibilities are now mainly associated with: maintaining standards
of qualification, ongoing professional development, and ethical standard setting.
1.15 How has case law affected auditing practice?
Case law has been an important influence on what an auditor does and what an auditor
reports since the late nineteenth century. One of the first major cases to address some of these
emerging issues for the auditing profession was Kingston Cotton Mill Co. (1896) 2 Ch.
279, where Lopes made the following comment on what is required of an auditor:
It is the duty of an auditor to bring to bear on the work he has to perform that skill,
care and caution that a reasonably competent, careful and cautious auditor would
use.
The emphasis of reasonable skill and care was a downgrading of the perceptions of auditor
responsibility up to this time. It meant that the concepts of risk, materiality and sampling
could be developed in the knowledge that the auditor was not attempting to provide absolute
assurance on a set of financial statements. The term ‘reasonable assurance’ is still in the
current audit opinion. This legal judgement also outlined that the audit role was not to detect
fraud. Fraud is difficult to detect because it differs from error in that there is an intention to
hide it, thereby making it harder to find than standard ‘errors’. This judgement lessened the
auditors’ responsibility in this area and some have suggested since that it went too far.
without experience in the field.Moreover, law exams tend to be long and require detailed written responses. These exams test the student’s ability to construct well-organized, persuasive
arguments within a limited amount of time. Many law students report difficulty with time management, as they must balance legal analysis with the need for coherent and concise
writing.6.3. Challenges in Mathematics ExamsMathematics exams present their own unique set of challenges. The primary difficulty lies Business EducationBusiness education prepares
students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program
SOLUTIONS MANUAL
to accompany
MODERN AUDITING
&
ASSURANCE SERVICES
6th edition
Prepared by
Philomena Leung, Paul Coram, Barry Cooper and
Peter Richardson
© John Wiley & Sons Australia, Ltd 2015
, Chapter 1: An overview of auditing
Chapter 1: An overview of auditing
without experience in the field.Moreover, law exams tend to be long and require detailed written responses. These exams test the student’s ability to construct well-organized, persuasive
arguments within a limited amount of time. Many law students report difficulty with time management, as they must balance legal analysis with the need for coherent and concise
writing.6.3. Challenges in Mathematics ExamsMathematics exams present their own unique set of challenges. The primary difficulty lies Business EducationBusiness education prepares
students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program
Review questions
1.11 Describe the nature of an audit.
An auditor sets out to achieve enhanced credibility of information disclosed to increase
reliability for the users of the financial statements. A definition from the Committee on Basic
Auditing is as follows:
An audit is a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria and communicating
the results to interested users.
1.12 What does an independent auditor do during a financial report
audit?
The auditor will provide a written opinion to the shareholders of a company as to the truth
and fairness of the financial report prepared by management. This includes ensuring that the
financial report is free from material error and is prepared in accordance with relevant
accounting standards and corporate law; in Australia this means compliance with the
Corporations Act and Australian Financial Reporting Standards.
The auditor performs audit procedures, generally performing tests on samples of the
company’s transactions and balances, to provide sufficient and appropriate evidence upon
which to rely in forming the audit opinion. Where the company has an effective internal
control system that prevents, detects and corrects potential accounting and reporting errors,
the auditor may choose to rely on those internal controls and reduce the amount of detailed
testing performed. Where there are no effective internal controls in place the auditor will
perform extensive tests of the company’s transactions and balances.
Once the audit work is completed the evidence is assessed and judgments are made as to the
possibility of the financial report containing material errors. If the auditor believes that the
financial report contains material errors the management will be requested to make any
necessary amendments to the report. If management refuse to amend the report the auditor
will consider the need to modify the audit opinion to highlight the errors to the users of the
financial report.
1.13 Explain how agency theory results in a demand for auditing.
In an agency relationship, investors (as principals) entrust their resources to managers (as
agents). The agent’s self-interest is expected to diverge from the principals’ interest, giving
rise to agency costs. A consequence of this agency problem is that investors will ‘price
, Solutions manual to accompany Modern Auditing and Assurance Services 6e
protect’ themselves on the assumption that managers are acting for themselves. It is therefore
a rational response that there is a demand for a financial statement audit to verify the
assertions made by management.
without experience in the field.Moreover, law exams tend to be long and require detailed written responses. These exams test the student’s ability to construct well-organized, persuasive
arguments within a limited amount of time. Many law students report difficulty with time management, as they must balance legal analysis with the need for coherent and concise
writing.6.3. Challenges in Mathematics ExamsMathematics exams present their own unique set of challenges. The primary difficulty lies Business EducationBusiness education prepares
students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program
1.14 How has the accounting profession’s role changed in recent years?
What does the accounting profession currently have responsibility
for?
From the earliest days of the accounting profession an important role was to provide a ‘brand
name’ to illustrate quality. This still has an important value today. Some of the specific parts
of the accounting profession’s role have included:
· developing standards of practice through research and issuance of standards, professional
education, and the establishment of rules of conduct for members
· ensuring professional conduct and effective self-regulation of quality of service
· maintaining standards of qualifications through accredited courses, examinations, and
practical experience for accountants seeking to become members.
The last ten years have seen a significant change in the role of the accounting profession in
Australia. This has been, in part, a response to some of the corporate scandals of the early
2000s where there was a large amount of trust lost in the accounting profession and
consequently some of their previous responsibilities have been taken over by the government.
The responsibility for accounting and auditing standard setting for companies that report
under the Corporations Act is now under government control. The regulation of accountants
involved in the corporate reporting world is now mainly performed by ASIC. The accounting
professions ongoing responsibilities are now mainly associated with: maintaining standards
of qualification, ongoing professional development, and ethical standard setting.
1.15 How has case law affected auditing practice?
Case law has been an important influence on what an auditor does and what an auditor
reports since the late nineteenth century. One of the first major cases to address some of these
emerging issues for the auditing profession was Kingston Cotton Mill Co. (1896) 2 Ch.
279, where Lopes made the following comment on what is required of an auditor:
It is the duty of an auditor to bring to bear on the work he has to perform that skill,
care and caution that a reasonably competent, careful and cautious auditor would
use.
The emphasis of reasonable skill and care was a downgrading of the perceptions of auditor
responsibility up to this time. It meant that the concepts of risk, materiality and sampling
could be developed in the knowledge that the auditor was not attempting to provide absolute
assurance on a set of financial statements. The term ‘reasonable assurance’ is still in the
current audit opinion. This legal judgement also outlined that the audit role was not to detect
fraud. Fraud is difficult to detect because it differs from error in that there is an intention to
hide it, thereby making it harder to find than standard ‘errors’. This judgement lessened the
auditors’ responsibility in this area and some have suggested since that it went too far.
