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SOLUTION MANUAL FOR AUDITING &
ASSURANCE SERVICES A SYSTEMATIC
APPROACH 12TH EDITION –BY WILLIAM
MESSIER JR,STEVEN GLOVER –ALL 21
CHAPTERS COVERED
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,-
TABLE OF CONTENTS
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
Chapter 2: The Financial Statement Auditing Environment
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
Chapter 4: Risk Assessment
Chapter 5: Evidence and Documentation
Chapter 6: Internal Control in a Financial Statement Audit
Chapter 7: Auditing Internal Control over Financial Reporting
Chapter 8: Audit Sampling: An Overview and Application to Tests of Controls
Chapter 9: Audit Sampling: An Application to Substantive Tests of Account Balances
Chapter 10: Auditing the Revenue Process
Chapter 11: Auditing the Purchasing Process
Chapter 12: Auditing the Human Resource Management Process
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: Cashand Investments
Chapter 17: Completing the Audit Engagement
Chapter 18: Reports on Audited Financial Statements
Chapter 19: Professional Conduct, Independence, and Quality Management
Chapter 20: Legal Liability
Chapter 21: Assurance, Attestation, and Internal Auditing Services
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CHAPTER 1
AN INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Answers to Review Questions
1-1 The study of auditing is more conceptual in nature compared to other accounting courses.
Rather than focusing on learning the rules, techniques, and computations required to prepare
financial statements, auditing emphasizes learning a framework of analytical and logicalskills to
evaluate the relevance and reliability of the systems and processes responsible for financial
information, as well as the 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.
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 the owner and manager. As a result, the agent 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 auditing was demanded prior to government regulation
such as statutory audit requirements. Additionally, many private companies and other entities not
subject to government auditing regulations also demand auditing.
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 information asymmetrythat
exists between them. That is, the manager 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, it is likely that the manager will not act in the
best interest of the owner and may manipulate the information provided to the owner
accordingly.
1-4 Independence is an important standard for auditors. If an auditor is not independent of
the client, users may lose confidence in the auditor’s ability to report 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 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.
1-5 Auditing (broadly defined) 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.
Assurance is engagement in which a practitioner expresses a conclusion designed to
enhance the degree of confidence of the intended users other than the responsible party aboutthe
outcome of the evaluation or measurement of a subject matter against criteria.
Examples of assurance services are assurance (audit) of financial statements, assurance of
prospective financial information, assurance of reporting on internal control,assurance of
-
, -
sustainability reporting, and assurance of electronic commerce.
-
SOLUTION MANUAL FOR AUDITING &
ASSURANCE SERVICES A SYSTEMATIC
APPROACH 12TH EDITION –BY WILLIAM
MESSIER JR,STEVEN GLOVER –ALL 21
CHAPTERS COVERED
-
,-
TABLE OF CONTENTS
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
Chapter 2: The Financial Statement Auditing Environment
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
Chapter 4: Risk Assessment
Chapter 5: Evidence and Documentation
Chapter 6: Internal Control in a Financial Statement Audit
Chapter 7: Auditing Internal Control over Financial Reporting
Chapter 8: Audit Sampling: An Overview and Application to Tests of Controls
Chapter 9: Audit Sampling: An Application to Substantive Tests of Account Balances
Chapter 10: Auditing the Revenue Process
Chapter 11: Auditing the Purchasing Process
Chapter 12: Auditing the Human Resource Management Process
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: Cashand Investments
Chapter 17: Completing the Audit Engagement
Chapter 18: Reports on Audited Financial Statements
Chapter 19: Professional Conduct, Independence, and Quality Management
Chapter 20: Legal Liability
Chapter 21: Assurance, Attestation, and Internal Auditing Services
-
,-
CHAPTER 1
AN INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Answers to Review Questions
1-1 The study of auditing is more conceptual in nature compared to other accounting courses.
Rather than focusing on learning the rules, techniques, and computations required to prepare
financial statements, auditing emphasizes learning a framework of analytical and logicalskills to
evaluate the relevance and reliability of the systems and processes responsible for financial
information, as well as the 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.
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 the owner and manager. As a result, the agent 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 auditing was demanded prior to government regulation
such as statutory audit requirements. Additionally, many private companies and other entities not
subject to government auditing regulations also demand auditing.
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 information asymmetrythat
exists between them. That is, the manager 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, it is likely that the manager will not act in the
best interest of the owner and may manipulate the information provided to the owner
accordingly.
1-4 Independence is an important standard for auditors. If an auditor is not independent of
the client, users may lose confidence in the auditor’s ability to report 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 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.
1-5 Auditing (broadly defined) 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.
Assurance is engagement in which a practitioner expresses a conclusion designed to
enhance the degree of confidence of the intended users other than the responsible party aboutthe
outcome of the evaluation or measurement of a subject matter against criteria.
Examples of assurance services are assurance (audit) of financial statements, assurance of
prospective financial information, assurance of reporting on internal control,assurance of
-
, -
sustainability reporting, and assurance of electronic commerce.
-
