SOLUTION MANUAL FOR
Principles Of Auditing And Other Assurance Services
23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)
, Table of Contents
b b
Chapterb1:bThebRolebofbthebPublicbAccountantbinbthebAmericanEconomy
Chapterb2:bProfessionalbStandards
Chapterb3:bProfessionalbEthics
Chapterb4:bLegalbLiabilitybofbCPAs
Chapterb5:bAuditbEvidencebandbDocumentation
Chapterb6:bAuditbPlanning,bUnderstandingbthebClient,bAssessingRisks,bandbResponding
Chapterb7:bInternalbControl
Chapterb8:bConsiderationbofbInternalbControlbinbanbInformationTechnologybEnvironment
Chapterb9:bAuditbSampling
Chapterb10:bCashbandbFinancialbInvestments
Chapterb11:bAccountsbReceivable,bNotesbReceivable,bandRevenue
Chapterb12:bInventoriesbandbCostbofbGoodsbSold
Chapterb13:bProperty,bPlant,bandbEquipment:bDepreciationbandDepletion
Chapterb14:bAccountsbPayablebandbOtherbLiabilities
Chapterb15:bDebtbandbEquitybCapital
Chapterb16:bAuditingbOperationsbandbCompletingbthebAudit
Chapterb17:bAuditors’bReports
Chapterb18:bIntegratedbAuditsbofbPublicbCompanies
Chapterb19:bAdditionalbAssurancebServices:bHistoricalbFinancialInformation
Chapterb20:bAdditionalbAssurancebServices:bOtherbInformation
Chapterb21:bInternal,bOperational,bandbCompliancebAuditing
,CHAPTER 1 b
The Role of the Publi
b b b b
c Accountant in the
b b b
American Economy b
ReviewbQuestions
1-1 Theb―crisisbofbcredibility‖blargelybarosebfrombthebnumberbofbcompaniesbthatbrestatedbtheirbpreviouslybissu
edbfinancialbstatementsbasb ab resultbofb accountingbirregularitiesbandbfraud.b Especiallybresponsiblebwerebthe
bverybvisiblebEnronbandbWorldCombfraudbcases.bBothbcompaniesb filedbforb bankruptcybandbconstitutedbth
eblargestbcompaniesbinbAmericanbhistorybtobdobso.b Thebextentbofbthebaccountingbirregularitiesbandbfraudb
beingbinvestigatedbandbdisclosedbbroughtbintobquestionbthebeffectivenessbofbfinancialbstatementbaudits.b In
baddition,bthebcriminalbconvictionbofbArthurbAndersen,bLLP,bonebofbthebthenbBigb5baccountingbfirms,bonbc
hargesbofbdestroyingbdocumentsbrelatedbtobthebEnronbcasebbroughtbintobquestionbthebethicsbstandardsbofbt
hebprofession.
1-2 Assurancebservicesbarebprofessionalbservicesbthatbenhancebthebqualitybofbinformation,borbitsbcontext,bfor
bdecision-
making.bThebtwobtypesbare:b(a)bthosebthatbincreasebthebreliabilitybofbinformationbandb(b)bthosebthatbinv
olvebputtingbinformationbinbabformborbcontextbthatbfacilitatesbdecision-making.
1-3 Abfinancialbstatementbauditb is,bbybfar,bthebmostbcommonbtypebofbattestbengagement.b Theboverallbassertion
,bmadebbybmanagement,bmostbfrequentlybisbthatbthebfinancialbstatementsbfollowbgenerallybacceptedbaccoun
tingbprinciples.
1-4 Ablargebcorporationbwithbsecuritiesblistedbonbabstockbexchangebisbrequiredbbybthebrulesbofbthebstockbexchan
gebandbbybthebrulesbofbthebSecuritiesb andbExchangebCommissionbtobprovidebanbauditb reportb withbthebannu
albfinancialbstatementsbfurnishedbtobitsbstockholders.b Itbalsobisbrequiredbtobengagebthebauditorsbtobprovideb
anbopinionbonbitsbinternalbcontrol.bApartbfromblegalbrequirements,bhowever,bablargeblistedbcorporationbre
cognizesbthatbitbmustbmaintainbinvestorbconfidencebinbthebreliabilitybofbitsbfinancialbstatementsb andb interna
lbcontrolboverb financialb reportingb ifb itb isb tobcontinuebtobbebablebtob securebcapitalbfrombthebpublic.bThebrep
ortb bybabfirmbofbcertifiedbpublicbaccountantsbaddsbcredibilitybtobthebfinancialbstatementsbpreparedbbybthebc
orporation.b Whenbabsmallbfamily-
ownedbenterprisebelectsb tobhavebanbaudit,bthebpurposebusuallybisbtobusebthebauditors'breportbtobsupportbanba
pplicationb forbabbankbloan.
, 1-5 Abreportbbybanbindependentbpublicbaccountantbconcerningbthebfairnessbofbabcompany'sbfinancialbstatement
sbisbcommonlybrequiredbinbthebfollowingbsituations:
(1) Applicationbforbabbankbloan.
(2) Establishingbcreditb forbpurchasebofb merchandise,bequipment,borbotherbassets.
(3) Reportingboperatingbresults,b financialbposition,bandbcashbflowsb tobabsenteebownersb (stockholder
sborbpartners).
(4) Issuancebofbsecuritiesbbybabcorporation.
(5) Annualbfinancialbstatementsb bybabcorporationbwithbsecuritiesb listedbonbabstockbexchangeborbtrade
dboverbthebcounter.
(6) Salebofbanbongoingbbusiness.
(7) Terminationbofb ab partnership.
1-6 Tobaddbcredibilitybtobfinancialbstatementsb isbtobincreasebtheblikelihoodbthatbtheybhavebbeenbpreparedbfollo
wingbthebappropriatebcriteria,busuallybgenerallybacceptedbaccountingbprinciples.b Asbsuch,banbincreasebinbcr
edibilitybresultsbinbfinancialbstatementsbthatbcanbbebbelievedbandbreliedbuponbbybthirdbparties.
1-7 Businessbriskbisb thebriskbthatb thebinvestmentbwillbbebimpairedbbecausebabcompanybinvestedbinbisb unablebt
obmeetbitsbfinancialbobligationsbduebtobeconomicbconditionsborbpoorbmanagementbdecisions.bInformationb
riskbisbthebriskbthatbthebinformationbusedbtobassessbbusinessbriskbisbnotbaccurate.bAuditorsbcanbdirectlyb
reducebinformationbrisk,bbutbhavebonlyblimitedbeffectbonbbusinessbrisk.
1-8 Atbthebbeginningbofbthebcentury,bthebprincipalbobjectivebofbauditingbwasb thebpreventionbandbdetectionbofbf
raud.bAuditbworkbcenteredbonbthebbalancebsheet,bbecausebthebincomebstatementbwasbregardedbasbhighlybco
nfidentialbandbnotb forbpublicbdisclosure.b Today,bthebprincipalbobjectivebofbauditingbisb tobformbanbopinion
bonbthebfairnessb ofbfinancialbstatementsb andbtheirbconformitybwithbgenerallybacceptedbaccountingbprinciple
s.b Butbthebprofessionalbstandardsbalsobrequirebthatbanbauditb bebdesignedbtobprovidebreasonablebassuranceb
ofbdetectingbmaterialbmisstatements,bduebtoberrorsb orbfraud.b Particularbemphasisb isb placedbonbthebincome
bstatementb whichbisb ofbgreatb importancebtobinvestors.b Auditingbtodaybalsobhasb thebobjectivesb ofbmeetingbt
hebrequirementsbofbthebSecuritiesbandbExchangebCommissionb(SEC)b andbthebPublicbCompanybAccountin
gbOversightbBoardbforbpublicbcompanies.
1-9 Thebstatementb isb incorrect.bThebincreasingbintegratedbdatabasesbofb today,balongbwithbavailablebaudi
tbproceduresbmakebauditedbentirebpopulationsbabpossibilitybinbmanybsituations.
1-10 Anboperationalbauditbattemptsbtobmeasurebthebeffectivenessbandbefficiencybofbabspecificbunitbofbanborg
anization.b Itbinvolvesb morebsubjectivebjudgmentsbthanbabcompliancebauditborbanbauditb ofbfinancialbstat
ementsbbecausebthebcriteriab ofbeffectivenessbandbefficiencybofbdepartmentalbperformancebarebnotb asbcl
earlybestablishedbasbarebmanyblawsbandbregulationsborbgenerallybacceptedbaccountingbprinciples.
Thebreportb preparedbafterbcompletionbofbanboperationalbauditb isb usuallybdirectedbtobmanagementb
ofbtheborganizationbinbwhichbthebauditbworkbwasbdone.
1-11 Abcompliancebauditbisbanbauditbtobdeterminebwhetherbfinancialbreportsborbotherbassertionsbarebinbcomplia
ncebwithbestablishedbcriteria.b Thebnecessarybingredientsbarebverifiablebdatabandbthebexistencebofbstandard
sbestablishedbbybanbauthoritativebbody.b Anboperationalbaudit,bonbthebotherbhand,bisb abreviewbofbabdepart
mentborbotherbunitbofbabbusinessb orbgovernmentalborganizationbtobmeasurebthebeffectivenessbandbefficien
cybofboperations.b InternalbauditorsboftenbperformboperationalbauditsbasbdobauditorsbemployedbbybthebGo
vernmentbAccountabilitybOfficeb(GAO)bofbthebfederalbgovernment.
1-12 Internalbauditorsb mustbbebindependentbofbthebdepartmentbheadsbandbotherblinebexecutivesbwhosebworkbthe
ybreview.bHowever,binternalbauditorsbarebnotbindependentbinbthebsamebsensebasbabpublicbaccountingbfirm.
Principles Of Auditing And Other Assurance Services
23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)
, Table of Contents
b b
Chapterb1:bThebRolebofbthebPublicbAccountantbinbthebAmericanEconomy
Chapterb2:bProfessionalbStandards
Chapterb3:bProfessionalbEthics
Chapterb4:bLegalbLiabilitybofbCPAs
Chapterb5:bAuditbEvidencebandbDocumentation
Chapterb6:bAuditbPlanning,bUnderstandingbthebClient,bAssessingRisks,bandbResponding
Chapterb7:bInternalbControl
Chapterb8:bConsiderationbofbInternalbControlbinbanbInformationTechnologybEnvironment
Chapterb9:bAuditbSampling
Chapterb10:bCashbandbFinancialbInvestments
Chapterb11:bAccountsbReceivable,bNotesbReceivable,bandRevenue
Chapterb12:bInventoriesbandbCostbofbGoodsbSold
Chapterb13:bProperty,bPlant,bandbEquipment:bDepreciationbandDepletion
Chapterb14:bAccountsbPayablebandbOtherbLiabilities
Chapterb15:bDebtbandbEquitybCapital
Chapterb16:bAuditingbOperationsbandbCompletingbthebAudit
Chapterb17:bAuditors’bReports
Chapterb18:bIntegratedbAuditsbofbPublicbCompanies
Chapterb19:bAdditionalbAssurancebServices:bHistoricalbFinancialInformation
Chapterb20:bAdditionalbAssurancebServices:bOtherbInformation
Chapterb21:bInternal,bOperational,bandbCompliancebAuditing
,CHAPTER 1 b
The Role of the Publi
b b b b
c Accountant in the
b b b
American Economy b
ReviewbQuestions
1-1 Theb―crisisbofbcredibility‖blargelybarosebfrombthebnumberbofbcompaniesbthatbrestatedbtheirbpreviouslybissu
edbfinancialbstatementsbasb ab resultbofb accountingbirregularitiesbandbfraud.b Especiallybresponsiblebwerebthe
bverybvisiblebEnronbandbWorldCombfraudbcases.bBothbcompaniesb filedbforb bankruptcybandbconstitutedbth
eblargestbcompaniesbinbAmericanbhistorybtobdobso.b Thebextentbofbthebaccountingbirregularitiesbandbfraudb
beingbinvestigatedbandbdisclosedbbroughtbintobquestionbthebeffectivenessbofbfinancialbstatementbaudits.b In
baddition,bthebcriminalbconvictionbofbArthurbAndersen,bLLP,bonebofbthebthenbBigb5baccountingbfirms,bonbc
hargesbofbdestroyingbdocumentsbrelatedbtobthebEnronbcasebbroughtbintobquestionbthebethicsbstandardsbofbt
hebprofession.
1-2 Assurancebservicesbarebprofessionalbservicesbthatbenhancebthebqualitybofbinformation,borbitsbcontext,bfor
bdecision-
making.bThebtwobtypesbare:b(a)bthosebthatbincreasebthebreliabilitybofbinformationbandb(b)bthosebthatbinv
olvebputtingbinformationbinbabformborbcontextbthatbfacilitatesbdecision-making.
1-3 Abfinancialbstatementbauditb is,bbybfar,bthebmostbcommonbtypebofbattestbengagement.b Theboverallbassertion
,bmadebbybmanagement,bmostbfrequentlybisbthatbthebfinancialbstatementsbfollowbgenerallybacceptedbaccoun
tingbprinciples.
1-4 Ablargebcorporationbwithbsecuritiesblistedbonbabstockbexchangebisbrequiredbbybthebrulesbofbthebstockbexchan
gebandbbybthebrulesbofbthebSecuritiesb andbExchangebCommissionbtobprovidebanbauditb reportb withbthebannu
albfinancialbstatementsbfurnishedbtobitsbstockholders.b Itbalsobisbrequiredbtobengagebthebauditorsbtobprovideb
anbopinionbonbitsbinternalbcontrol.bApartbfromblegalbrequirements,bhowever,bablargeblistedbcorporationbre
cognizesbthatbitbmustbmaintainbinvestorbconfidencebinbthebreliabilitybofbitsbfinancialbstatementsb andb interna
lbcontrolboverb financialb reportingb ifb itb isb tobcontinuebtobbebablebtob securebcapitalbfrombthebpublic.bThebrep
ortb bybabfirmbofbcertifiedbpublicbaccountantsbaddsbcredibilitybtobthebfinancialbstatementsbpreparedbbybthebc
orporation.b Whenbabsmallbfamily-
ownedbenterprisebelectsb tobhavebanbaudit,bthebpurposebusuallybisbtobusebthebauditors'breportbtobsupportbanba
pplicationb forbabbankbloan.
, 1-5 Abreportbbybanbindependentbpublicbaccountantbconcerningbthebfairnessbofbabcompany'sbfinancialbstatement
sbisbcommonlybrequiredbinbthebfollowingbsituations:
(1) Applicationbforbabbankbloan.
(2) Establishingbcreditb forbpurchasebofb merchandise,bequipment,borbotherbassets.
(3) Reportingboperatingbresults,b financialbposition,bandbcashbflowsb tobabsenteebownersb (stockholder
sborbpartners).
(4) Issuancebofbsecuritiesbbybabcorporation.
(5) Annualbfinancialbstatementsb bybabcorporationbwithbsecuritiesb listedbonbabstockbexchangeborbtrade
dboverbthebcounter.
(6) Salebofbanbongoingbbusiness.
(7) Terminationbofb ab partnership.
1-6 Tobaddbcredibilitybtobfinancialbstatementsb isbtobincreasebtheblikelihoodbthatbtheybhavebbeenbpreparedbfollo
wingbthebappropriatebcriteria,busuallybgenerallybacceptedbaccountingbprinciples.b Asbsuch,banbincreasebinbcr
edibilitybresultsbinbfinancialbstatementsbthatbcanbbebbelievedbandbreliedbuponbbybthirdbparties.
1-7 Businessbriskbisb thebriskbthatb thebinvestmentbwillbbebimpairedbbecausebabcompanybinvestedbinbisb unablebt
obmeetbitsbfinancialbobligationsbduebtobeconomicbconditionsborbpoorbmanagementbdecisions.bInformationb
riskbisbthebriskbthatbthebinformationbusedbtobassessbbusinessbriskbisbnotbaccurate.bAuditorsbcanbdirectlyb
reducebinformationbrisk,bbutbhavebonlyblimitedbeffectbonbbusinessbrisk.
1-8 Atbthebbeginningbofbthebcentury,bthebprincipalbobjectivebofbauditingbwasb thebpreventionbandbdetectionbofbf
raud.bAuditbworkbcenteredbonbthebbalancebsheet,bbecausebthebincomebstatementbwasbregardedbasbhighlybco
nfidentialbandbnotb forbpublicbdisclosure.b Today,bthebprincipalbobjectivebofbauditingbisb tobformbanbopinion
bonbthebfairnessb ofbfinancialbstatementsb andbtheirbconformitybwithbgenerallybacceptedbaccountingbprinciple
s.b Butbthebprofessionalbstandardsbalsobrequirebthatbanbauditb bebdesignedbtobprovidebreasonablebassuranceb
ofbdetectingbmaterialbmisstatements,bduebtoberrorsb orbfraud.b Particularbemphasisb isb placedbonbthebincome
bstatementb whichbisb ofbgreatb importancebtobinvestors.b Auditingbtodaybalsobhasb thebobjectivesb ofbmeetingbt
hebrequirementsbofbthebSecuritiesbandbExchangebCommissionb(SEC)b andbthebPublicbCompanybAccountin
gbOversightbBoardbforbpublicbcompanies.
1-9 Thebstatementb isb incorrect.bThebincreasingbintegratedbdatabasesbofb today,balongbwithbavailablebaudi
tbproceduresbmakebauditedbentirebpopulationsbabpossibilitybinbmanybsituations.
1-10 Anboperationalbauditbattemptsbtobmeasurebthebeffectivenessbandbefficiencybofbabspecificbunitbofbanborg
anization.b Itbinvolvesb morebsubjectivebjudgmentsbthanbabcompliancebauditborbanbauditb ofbfinancialbstat
ementsbbecausebthebcriteriab ofbeffectivenessbandbefficiencybofbdepartmentalbperformancebarebnotb asbcl
earlybestablishedbasbarebmanyblawsbandbregulationsborbgenerallybacceptedbaccountingbprinciples.
Thebreportb preparedbafterbcompletionbofbanboperationalbauditb isb usuallybdirectedbtobmanagementb
ofbtheborganizationbinbwhichbthebauditbworkbwasbdone.
1-11 Abcompliancebauditbisbanbauditbtobdeterminebwhetherbfinancialbreportsborbotherbassertionsbarebinbcomplia
ncebwithbestablishedbcriteria.b Thebnecessarybingredientsbarebverifiablebdatabandbthebexistencebofbstandard
sbestablishedbbybanbauthoritativebbody.b Anboperationalbaudit,bonbthebotherbhand,bisb abreviewbofbabdepart
mentborbotherbunitbofbabbusinessb orbgovernmentalborganizationbtobmeasurebthebeffectivenessbandbefficien
cybofboperations.b InternalbauditorsboftenbperformboperationalbauditsbasbdobauditorsbemployedbbybthebGo
vernmentbAccountabilitybOfficeb(GAO)bofbthebfederalbgovernment.
1-12 Internalbauditorsb mustbbebindependentbofbthebdepartmentbheadsbandbotherblinebexecutivesbwhosebworkbthe
ybreview.bHowever,binternalbauditorsbarebnotbindependentbinbthebsamebsensebasbabpublicbaccountingbfirm.
