Chapter ch01 ch- chAuditing chand chAssurance
Services
Solution Manual For Auditing & Assurance Services
ch ch ch ch ch ch ch
ch 9th Edition by Timothy Louwers, Penelope Bagley
ch ch ch ch ch ch
,Chapter ch01 ch- chAuditing chand chAssurance
Services
CHAPTER ch01
Auditing chand chAssurance chServices
LEARNING chOBJECTIVES
Review Multiple Exercises, chProblems,
ch Checkpoints chChoice chand chSimulations
1. chDefine chinformation chrisk chand chexplain chhow 1, ch2, ch3 29, ch31, ch38 65*
chthe chfinancial chstatement chauditing chprocess
chhelps chto chreduce chthis chrisk, chthereby
chreducing chthe chcost chof chcapital chfor cha
chcompany.
2. Define chand chcontrast chassurance, 4, ch5, ch6, ch7, ch8 23, ch25, ch28, ch44, 60, ch65*
chattestation, 50
and chfinancial chstatement chauditing chservices.
3. Describe chand chdefine chthe chassertions chthat 9, ch10, ch11 36, ch39, ch40, ch41, 62, ch63, ch67, ch68, ch69
chmanagement ch makes chabout chthe ch45,
chrecognition, chmeasurement, chpresentation, 46, ch47, ch48, ch49,
chand chdisclosure chof chthe chfinancial ch52,
chstatements chand chexplain chwhy chauditors chuse 53, ch54, ch55, ch57,
chthem chas cha chfocal chpoint chof chthe chaudit. ch58,
59
4. Define chprofessional chskepticism chand chexplain 12 24, ch37 61
chits chkey chcharacteristics.
5. Describe chthe chorganization chof chpublic 13, ch14 30, ch42, ch56 72
chaccounting chfirms chand chidentify chthe chvarious
chservices chthat chthey choffer.
6. Describe chthe chaudits chand chauditors chin 15, ch16, ch17, ch18 26, ch27, ch32, ch34, 64, ch66
chgovernmental, chinternal, chand ch35
choperational chauditing.
7. List chand chexplain chthe chrequirements chfor 19, ch20, ch21, ch22 33, ch43, ch51 70, ch71
chbecoming cha chcertified chpublic chaccountant
ch(CPA) chand chother chcertifications chavailable
chto chan chaccounting chprofessional.
(*) chItem chrelates chto chmultiple chlearning chobjectives
,Chapter ch01 ch- chAuditing chand chAssurance
Services
SOLUTIONS chFOR chREVIEW chCHECKPOINTS
1.1 Business chrisk chis chthe chrisk chthat chan chentity chwill chfail chto chmeet chits chbusiness chobjectives. chWhen
chassessing chbusiness chrisk, cha chprofessional ch must chconsider chall chpossible chthreats chto chan chentity‗s chgoals
chand chobjectives. chSome chillustrative chexamples chinclude chthe chrisk chthat: ch1) chits chexisting chcustomers
ch will chstart chbuying chproducts chor chservices chfrom chits chprimary chcompetitors; ch2) chits chproduct chlines chwill
chbecome chobsolete; ch3) chits chtaxes ch will chincrease; ch4) chkey chgovernment chcontracts chwill chbe chlost; ch5) chkey
chemployees chwill chleave chthe chentity; chand chmany chother chexamples chexist.
1.2 To chhelp chminimize chbusiness chrisk chand chtake chadvantage chof chother chopportunities chpresented chin chtoday‗s
chcompetitive chbusiness chenvironment, chdecision chmakers chsuch chas chchief chexecutive chofficers ch(CEOs)
chdemand chtimely, chrelevant, chand chreliable chinformation. chThere chare chat chleast chfour chenvironmental
chconditions chthat chincrease chdemand chfor chreliable chinformation. chFirst, chcomplexity ch which chimplies chthat
chevents chand chtransactions chin chtoday‗s chglobal chbusiness chenvironment chcan chbe chcomplicated. chMost
chinvestors chdo chnot chhave chthe chlevel chof chexpertise chneeded chto chproperly chaccount chfor chcomplex
chtransactions. chSecond chis chremoteness ch which chimplies chthat chdecision chmakers chare choften chseparated chfrom
chcurrent chand chpotential chbusiness chrelationships chdue chto chdistance chand chtime. chFor chexample, chinvestors chmay
chnot chbe chable chto chvisit chdistant chlocations chto chcheck chup chon chtheir chinvestments. chThird chis chtime-
sensitivity chwhich chimplies chthat chin chtoday‗s checonomic chenvironment, chinvestors chand chother chusers chof
chfinancial chstatements chneed chto chmake chdecisions chmore chrapidly chthan chever chbefore. chAs cha chresult, chthe
chability chto chpromptly chobtain chhigh-quality chinformation chis chessential. chFourth chis cha chconsequence ch which
chimplies chthat chdecisions chmay chvery ch well chinvolve chsignificant chinvestments. c h As cha chresult, chthe
chconsequences chcan chbe chsevere chif chinformation chcannot chbe chobtained
1.3 Of chall chthe chdifferent chrisks chdiscussed chin chthe chchapter chup chto chthis chpoint, chinformation chrisk chis chthe chone
chthat chis chmost chlikely chto chcreate chthe chdemand chfor chindependent chand chobjective chassurance chservices chis
chinformation chrisk chor chthe chprobability chthat chthe chinformation chcirculated chby chan chentity chwill chbe chfalse
chor chmisleading. chBecause chthe chprimary chsource chof chinformation chfor chinvestors chand chcreditors chis chthe
chcompany chitself, chan chincentive chexists chfor chthat chcompany‗s chmanagement chto chmake chtheir chbusiness chor
chservice chappear chto chbe chbetter chthan chit chactually chmay chbe, chto chput chtheir chbest chfoot chforward. chAs cha
chresult, chpreparers chand chissuers chof chfinancial chinformation ch(directors, chmanagers, chaccountants, chand
chother chpeople chemployed chin cha chbusiness) chmight chbenefit chby chgiving chfalse, chmisleading, chor choverly
choptimistic chinformation. chThis chpotential chconflict chof chinterest chbetween chinformation chproviders chand
chusers ch which chprovides chthe chunderlying chbasis chfor chthe chdemand chfor chreliable chinformation.
1.4 The chfour chmajor chelements chof chthe chbroad chdefinition chof chassurance chservices chare
Independence. c h CPAs chwant chto chpreserve chtheir chreputation chand chcompetitive chadvantage chby chalways
chpreserving chintegrity chand chobjectivity ch when chperforming chassurance chservices.
Professional chservices. chVirtually chall chwork chperformed chby chCPAs chis chdefined chas ch―professional chservices‖
chas chlong chas chit chinvolves chsome chelement chof chjudgment chbased chon cheducation chand chexperience.
Improving chthe chquality chof chinformation chor chits chcontext. chThe chemphasis chis chon ch―information,‖ chCPAs‗
chtraditional charea chof chexpertise. chCPAs chcan chenhance chquality chby chassuring chusers chabout chthe chreliability
chand chrelevance chof chinformation, chand chthese chtwo chfeatures chare chclosely chrelated chto chthe chfamiliar
chcredibility-lending chproducts chof chattestation chand chaudit chservices. ch―Context‖ chis chrelevance chin cha chdifferent
chlight. chFor chassurance chservices, chimproving chthe chcontext chof chinformation chrefers chto chimproving chits
chusefulness chwhen chtargeted chto chparticular chdecision chmakers chin chthe chsurroundings chof chparticular chdecision
chproblems.
For chdecision chmakers. chAs chthe ch―consumers‖ chof chassurance chservices, chdecision chmakers chare chthe
chbeneficiaries chof chthe chassurance chservices. chDecision chmakers chmay chor chmay chnot chbe chthe ch―client‖ chthat chpays
chthe chfee chand chmay chor chmay chnot chbe chone chof chthe chparties chto chan chassertion chor chother chinformation, chbut
chthey chpersonify chthe chconsumer chfocus chof chnew chand chdifferent chprofessional ch work.
1.5 An chassurance chservices chengagement chis chany chassignment chthat chimproves chthe chquality chof chinformation,
chor chits chcontext, chfor chdecision chmakers. chBecause chinformation ch(e.g., chfinancial chstatements) chare
chprepared chby chmanagers chof chan chentity chwho chhave chauthority chand chresponsibility chfor chfinancial chsuccess chor
chfailure, chan choutsider chmay chbe chskeptical chthat chthe chinformation chtruly chis chobjective, chfree chfrom chbias,
chfully chinformative, chand chfree chfrom ch material cherror, chintentional chor chinadvertent. c h The chservices chof chan
, Chapter ch01 ch- chAuditing chand chAssurance
Services
ch independent chauditor chhelps chresolve chthose chdoubts chbecause chthe
Services
Solution Manual For Auditing & Assurance Services
ch ch ch ch ch ch ch
ch 9th Edition by Timothy Louwers, Penelope Bagley
ch ch ch ch ch ch
,Chapter ch01 ch- chAuditing chand chAssurance
Services
CHAPTER ch01
Auditing chand chAssurance chServices
LEARNING chOBJECTIVES
Review Multiple Exercises, chProblems,
ch Checkpoints chChoice chand chSimulations
1. chDefine chinformation chrisk chand chexplain chhow 1, ch2, ch3 29, ch31, ch38 65*
chthe chfinancial chstatement chauditing chprocess
chhelps chto chreduce chthis chrisk, chthereby
chreducing chthe chcost chof chcapital chfor cha
chcompany.
2. Define chand chcontrast chassurance, 4, ch5, ch6, ch7, ch8 23, ch25, ch28, ch44, 60, ch65*
chattestation, 50
and chfinancial chstatement chauditing chservices.
3. Describe chand chdefine chthe chassertions chthat 9, ch10, ch11 36, ch39, ch40, ch41, 62, ch63, ch67, ch68, ch69
chmanagement ch makes chabout chthe ch45,
chrecognition, chmeasurement, chpresentation, 46, ch47, ch48, ch49,
chand chdisclosure chof chthe chfinancial ch52,
chstatements chand chexplain chwhy chauditors chuse 53, ch54, ch55, ch57,
chthem chas cha chfocal chpoint chof chthe chaudit. ch58,
59
4. Define chprofessional chskepticism chand chexplain 12 24, ch37 61
chits chkey chcharacteristics.
5. Describe chthe chorganization chof chpublic 13, ch14 30, ch42, ch56 72
chaccounting chfirms chand chidentify chthe chvarious
chservices chthat chthey choffer.
6. Describe chthe chaudits chand chauditors chin 15, ch16, ch17, ch18 26, ch27, ch32, ch34, 64, ch66
chgovernmental, chinternal, chand ch35
choperational chauditing.
7. List chand chexplain chthe chrequirements chfor 19, ch20, ch21, ch22 33, ch43, ch51 70, ch71
chbecoming cha chcertified chpublic chaccountant
ch(CPA) chand chother chcertifications chavailable
chto chan chaccounting chprofessional.
(*) chItem chrelates chto chmultiple chlearning chobjectives
,Chapter ch01 ch- chAuditing chand chAssurance
Services
SOLUTIONS chFOR chREVIEW chCHECKPOINTS
1.1 Business chrisk chis chthe chrisk chthat chan chentity chwill chfail chto chmeet chits chbusiness chobjectives. chWhen
chassessing chbusiness chrisk, cha chprofessional ch must chconsider chall chpossible chthreats chto chan chentity‗s chgoals
chand chobjectives. chSome chillustrative chexamples chinclude chthe chrisk chthat: ch1) chits chexisting chcustomers
ch will chstart chbuying chproducts chor chservices chfrom chits chprimary chcompetitors; ch2) chits chproduct chlines chwill
chbecome chobsolete; ch3) chits chtaxes ch will chincrease; ch4) chkey chgovernment chcontracts chwill chbe chlost; ch5) chkey
chemployees chwill chleave chthe chentity; chand chmany chother chexamples chexist.
1.2 To chhelp chminimize chbusiness chrisk chand chtake chadvantage chof chother chopportunities chpresented chin chtoday‗s
chcompetitive chbusiness chenvironment, chdecision chmakers chsuch chas chchief chexecutive chofficers ch(CEOs)
chdemand chtimely, chrelevant, chand chreliable chinformation. chThere chare chat chleast chfour chenvironmental
chconditions chthat chincrease chdemand chfor chreliable chinformation. chFirst, chcomplexity ch which chimplies chthat
chevents chand chtransactions chin chtoday‗s chglobal chbusiness chenvironment chcan chbe chcomplicated. chMost
chinvestors chdo chnot chhave chthe chlevel chof chexpertise chneeded chto chproperly chaccount chfor chcomplex
chtransactions. chSecond chis chremoteness ch which chimplies chthat chdecision chmakers chare choften chseparated chfrom
chcurrent chand chpotential chbusiness chrelationships chdue chto chdistance chand chtime. chFor chexample, chinvestors chmay
chnot chbe chable chto chvisit chdistant chlocations chto chcheck chup chon chtheir chinvestments. chThird chis chtime-
sensitivity chwhich chimplies chthat chin chtoday‗s checonomic chenvironment, chinvestors chand chother chusers chof
chfinancial chstatements chneed chto chmake chdecisions chmore chrapidly chthan chever chbefore. chAs cha chresult, chthe
chability chto chpromptly chobtain chhigh-quality chinformation chis chessential. chFourth chis cha chconsequence ch which
chimplies chthat chdecisions chmay chvery ch well chinvolve chsignificant chinvestments. c h As cha chresult, chthe
chconsequences chcan chbe chsevere chif chinformation chcannot chbe chobtained
1.3 Of chall chthe chdifferent chrisks chdiscussed chin chthe chchapter chup chto chthis chpoint, chinformation chrisk chis chthe chone
chthat chis chmost chlikely chto chcreate chthe chdemand chfor chindependent chand chobjective chassurance chservices chis
chinformation chrisk chor chthe chprobability chthat chthe chinformation chcirculated chby chan chentity chwill chbe chfalse
chor chmisleading. chBecause chthe chprimary chsource chof chinformation chfor chinvestors chand chcreditors chis chthe
chcompany chitself, chan chincentive chexists chfor chthat chcompany‗s chmanagement chto chmake chtheir chbusiness chor
chservice chappear chto chbe chbetter chthan chit chactually chmay chbe, chto chput chtheir chbest chfoot chforward. chAs cha
chresult, chpreparers chand chissuers chof chfinancial chinformation ch(directors, chmanagers, chaccountants, chand
chother chpeople chemployed chin cha chbusiness) chmight chbenefit chby chgiving chfalse, chmisleading, chor choverly
choptimistic chinformation. chThis chpotential chconflict chof chinterest chbetween chinformation chproviders chand
chusers ch which chprovides chthe chunderlying chbasis chfor chthe chdemand chfor chreliable chinformation.
1.4 The chfour chmajor chelements chof chthe chbroad chdefinition chof chassurance chservices chare
Independence. c h CPAs chwant chto chpreserve chtheir chreputation chand chcompetitive chadvantage chby chalways
chpreserving chintegrity chand chobjectivity ch when chperforming chassurance chservices.
Professional chservices. chVirtually chall chwork chperformed chby chCPAs chis chdefined chas ch―professional chservices‖
chas chlong chas chit chinvolves chsome chelement chof chjudgment chbased chon cheducation chand chexperience.
Improving chthe chquality chof chinformation chor chits chcontext. chThe chemphasis chis chon ch―information,‖ chCPAs‗
chtraditional charea chof chexpertise. chCPAs chcan chenhance chquality chby chassuring chusers chabout chthe chreliability
chand chrelevance chof chinformation, chand chthese chtwo chfeatures chare chclosely chrelated chto chthe chfamiliar
chcredibility-lending chproducts chof chattestation chand chaudit chservices. ch―Context‖ chis chrelevance chin cha chdifferent
chlight. chFor chassurance chservices, chimproving chthe chcontext chof chinformation chrefers chto chimproving chits
chusefulness chwhen chtargeted chto chparticular chdecision chmakers chin chthe chsurroundings chof chparticular chdecision
chproblems.
For chdecision chmakers. chAs chthe ch―consumers‖ chof chassurance chservices, chdecision chmakers chare chthe
chbeneficiaries chof chthe chassurance chservices. chDecision chmakers chmay chor chmay chnot chbe chthe ch―client‖ chthat chpays
chthe chfee chand chmay chor chmay chnot chbe chone chof chthe chparties chto chan chassertion chor chother chinformation, chbut
chthey chpersonify chthe chconsumer chfocus chof chnew chand chdifferent chprofessional ch work.
1.5 An chassurance chservices chengagement chis chany chassignment chthat chimproves chthe chquality chof chinformation,
chor chits chcontext, chfor chdecision chmakers. chBecause chinformation ch(e.g., chfinancial chstatements) chare
chprepared chby chmanagers chof chan chentity chwho chhave chauthority chand chresponsibility chfor chfinancial chsuccess chor
chfailure, chan choutsider chmay chbe chskeptical chthat chthe chinformation chtruly chis chobjective, chfree chfrom chbias,
chfully chinformative, chand chfree chfrom ch material cherror, chintentional chor chinadvertent. c h The chservices chof chan
, Chapter ch01 ch- chAuditing chand chAssurance
Services
ch independent chauditor chhelps chresolve chthose chdoubts chbecause chthe
