AUDITING: A RISK-BASED APPROACH
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12e ||ZEHMS, GRAMLING, RITTENBERG||
| | | |
Solutions |for |Chapter |1
Solutions |Manual |Reconciliation |from |11e |to |12e
Question |# |for |11e Deleted/replaced/updated/new? Question |# |for |12e
1 1
2 Deleted |& |replaced |with 2
|question |about |regulatory
|enforcement
3 3
4 4
5 5
6 6
7 7
8 Updated |from |a |generic 8
|question |to |one |specifically
|focused |on |the |Theranos
|fraud.
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
22 Updated |to |reflect |2021 22
|IESB |Code |of |Ethics.
23 23
24 24
25 25
26 26
27 27
28 28
29 29
1-1
,30 30
40 Changed |order |of |learning 31
|objectives; |same |question
41 Changed |order |of |learning 32
|objectives; |same |question
42 Changed |order |of |learning 33
|objectives; |same |question
31 34
32 Updated |– |added |additional 35
|content |on |poor |judgments
|as |documented |in |a
|PCAOB |enforcement
|release
33 36
34 37
35 38
36 39
37 40
38 41
39 42
New |fraud |case |about 43
|Elizabeth |Holmes |&
|Theranos
43 44
44 45
45 46
46 47
47 48
48 49
49 50
50 Updated |to |a |2021 |PCAOB 51
|enforcement |case
|illustrating |the |same |points.
New |case |investigating |the 52
|outcome |of |the
|Holmes/Theranos |trial.
New |case |simulation |on 53
|data |analytics |and |CPA
|exam |written
|communication.
51 Deleted |Academic
Research |case; |eliminating
|this |feature.
1-2
, 52 Deleted |Academic
|Research |case; |eliminating
|this |feature.
Answers |to |Check |Your |Basic |Knowledge |Questions
1-1 |T
1-2 |F
1-3 |d
1-4 |b
1-5 |T
1-6 |F
1-7 |a
1-8 |b
1-9 |T
1-10 |F
1-11 |d
1-12 |c
1-13 |T
1-14 |T
1-15 |b
1-16 |d
1-17 |T
1-18 |F
1-19 |d
1-20 |c
1-21 |T
1-22 |T
1-23 |b
1-24 |a
Review |Questions |and |Short |Cases
1-1
The |objective |of |external |auditing |is |to |provide |opinions |on |the |reliability |of |the |financial
|statements |and, |as |part |of |an |integrated |audit, |provide |opinions |on |internal |control |effectiveness.
|The |value |of |the |external |auditing |profession |is |affirmed |when |the |public |has |confidence |in |its
|objectivity |and |the |accuracy |of |its |opinions. |The |capital |markets |depend |on |accurate, |reliable, |and
|objective |(neutral) |data |that |portray |the |economic |nature |of |an |entity’s |business |and |in |turn
|provide |a |base |to |judge |current |progress |toward |long-term |objectives. |If |the |market |does |not
|receive |reliable |data, |investors |lose |confidence |in |the |system, |make |poor |decisions, |and |may |lose |a
|great |deal |of |money; |ultimately, |the |system |may |fail. |By |providing |an |independent |audit
1-3
, opinion, |the |capital |markets |have |assurance |that |the |financial |data |that |they |are |basing |their
|decisions |on |are |accurate.
1-2
The |economy |benefits |from |regulatory |enforcement |because |people |know |that |the |government |is
|devoting |resources |to |protecting |them, |which |makes |people |more |likely |to |invest |with |confidence.
|By |investing |with |confidence, |investors |make |capital |available |to |companies |who |can |use |that
|capital |in |profitable |ways |that |benefit |the |entire |society |through |products/services, |jobs, |and |taxes.
|The |economy |benefits |from |the |auditing |profession |because |the |assurance |that |audits |provide |also
|makes |people |more |likely |to |invest |with |confidence.
1-3
Audit |services |are |demanded |because |there |is:
● Potential |bias |in |providing |information
● Remoteness |between |a |user |and |the |organization |or |trading |partner
● Such |complexity |in |the |transaction, |information, |or |processing |systems |that |it |is |difficult |to
|determine |their |proper |presentation |without |a |review |by |an |independent |expert
● Need |to |limit |negative |consequences |that |arise |from |relying |on |inaccurate |information |1-
4
The |audit |enhances |the |quality |of |financial |statements |because |the |user |has |assurance |that |an
|independent, |qualified |professional |has |examined |the |financial |statements |and |has |rendered |an
|opinion |on |their |fairness. |The |independence |and |expertise |of |the |auditor |serve |as |a |quality |control
|function |to |overcome |the |potential |bias |of |management |in |presenting |the |financial |statements |in |a
|manner |that |most |flatters |an |assessment |of |their |performance. |The |audit |is |designed |to |add
|credibility |to |the |financial |statements.
An |audit |does |not |necessarily |guarantee |a |fair |presentation |of |a |company's |financial
|statements, |although |it |does |increase |the |likelihood |that |there |are |no |material |misstatements |in |the
|company's |financial |statements. |The |audit |provides |reasonable, |but |not |absolute, |assurance |about
|the |accuracy |of |the |financial |statements. |The |caveats |about |fairness |exist |for |two |reasons:
● Fairness |is |judged |within |the |applicable |financial |reporting |framework. |Some |question
|whether |GAAP |or |IFRS |results |in |the |fairest |possible |presentations |in |all |situations.
● Although |designed |to |detect |material |fraud, |it |might |be |possible |that |a |well-executed
|audit |may |still |fail |to |detect |fraud.
1-5
1-4
| | |
12e ||ZEHMS, GRAMLING, RITTENBERG||
| | | |
Solutions |for |Chapter |1
Solutions |Manual |Reconciliation |from |11e |to |12e
Question |# |for |11e Deleted/replaced/updated/new? Question |# |for |12e
1 1
2 Deleted |& |replaced |with 2
|question |about |regulatory
|enforcement
3 3
4 4
5 5
6 6
7 7
8 Updated |from |a |generic 8
|question |to |one |specifically
|focused |on |the |Theranos
|fraud.
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
22 Updated |to |reflect |2021 22
|IESB |Code |of |Ethics.
23 23
24 24
25 25
26 26
27 27
28 28
29 29
1-1
,30 30
40 Changed |order |of |learning 31
|objectives; |same |question
41 Changed |order |of |learning 32
|objectives; |same |question
42 Changed |order |of |learning 33
|objectives; |same |question
31 34
32 Updated |– |added |additional 35
|content |on |poor |judgments
|as |documented |in |a
|PCAOB |enforcement
|release
33 36
34 37
35 38
36 39
37 40
38 41
39 42
New |fraud |case |about 43
|Elizabeth |Holmes |&
|Theranos
43 44
44 45
45 46
46 47
47 48
48 49
49 50
50 Updated |to |a |2021 |PCAOB 51
|enforcement |case
|illustrating |the |same |points.
New |case |investigating |the 52
|outcome |of |the
|Holmes/Theranos |trial.
New |case |simulation |on 53
|data |analytics |and |CPA
|exam |written
|communication.
51 Deleted |Academic
Research |case; |eliminating
|this |feature.
1-2
, 52 Deleted |Academic
|Research |case; |eliminating
|this |feature.
Answers |to |Check |Your |Basic |Knowledge |Questions
1-1 |T
1-2 |F
1-3 |d
1-4 |b
1-5 |T
1-6 |F
1-7 |a
1-8 |b
1-9 |T
1-10 |F
1-11 |d
1-12 |c
1-13 |T
1-14 |T
1-15 |b
1-16 |d
1-17 |T
1-18 |F
1-19 |d
1-20 |c
1-21 |T
1-22 |T
1-23 |b
1-24 |a
Review |Questions |and |Short |Cases
1-1
The |objective |of |external |auditing |is |to |provide |opinions |on |the |reliability |of |the |financial
|statements |and, |as |part |of |an |integrated |audit, |provide |opinions |on |internal |control |effectiveness.
|The |value |of |the |external |auditing |profession |is |affirmed |when |the |public |has |confidence |in |its
|objectivity |and |the |accuracy |of |its |opinions. |The |capital |markets |depend |on |accurate, |reliable, |and
|objective |(neutral) |data |that |portray |the |economic |nature |of |an |entity’s |business |and |in |turn
|provide |a |base |to |judge |current |progress |toward |long-term |objectives. |If |the |market |does |not
|receive |reliable |data, |investors |lose |confidence |in |the |system, |make |poor |decisions, |and |may |lose |a
|great |deal |of |money; |ultimately, |the |system |may |fail. |By |providing |an |independent |audit
1-3
, opinion, |the |capital |markets |have |assurance |that |the |financial |data |that |they |are |basing |their
|decisions |on |are |accurate.
1-2
The |economy |benefits |from |regulatory |enforcement |because |people |know |that |the |government |is
|devoting |resources |to |protecting |them, |which |makes |people |more |likely |to |invest |with |confidence.
|By |investing |with |confidence, |investors |make |capital |available |to |companies |who |can |use |that
|capital |in |profitable |ways |that |benefit |the |entire |society |through |products/services, |jobs, |and |taxes.
|The |economy |benefits |from |the |auditing |profession |because |the |assurance |that |audits |provide |also
|makes |people |more |likely |to |invest |with |confidence.
1-3
Audit |services |are |demanded |because |there |is:
● Potential |bias |in |providing |information
● Remoteness |between |a |user |and |the |organization |or |trading |partner
● Such |complexity |in |the |transaction, |information, |or |processing |systems |that |it |is |difficult |to
|determine |their |proper |presentation |without |a |review |by |an |independent |expert
● Need |to |limit |negative |consequences |that |arise |from |relying |on |inaccurate |information |1-
4
The |audit |enhances |the |quality |of |financial |statements |because |the |user |has |assurance |that |an
|independent, |qualified |professional |has |examined |the |financial |statements |and |has |rendered |an
|opinion |on |their |fairness. |The |independence |and |expertise |of |the |auditor |serve |as |a |quality |control
|function |to |overcome |the |potential |bias |of |management |in |presenting |the |financial |statements |in |a
|manner |that |most |flatters |an |assessment |of |their |performance. |The |audit |is |designed |to |add
|credibility |to |the |financial |statements.
An |audit |does |not |necessarily |guarantee |a |fair |presentation |of |a |company's |financial
|statements, |although |it |does |increase |the |likelihood |that |there |are |no |material |misstatements |in |the
|company's |financial |statements. |The |audit |provides |reasonable, |but |not |absolute, |assurance |about
|the |accuracy |of |the |financial |statements. |The |caveats |about |fairness |exist |for |two |reasons:
● Fairness |is |judged |within |the |applicable |financial |reporting |framework. |Some |question
|whether |GAAP |or |IFRS |results |in |the |fairest |possible |presentations |in |all |situations.
● Although |designed |to |detect |material |fraud, |it |might |be |possible |that |a |well-executed
|audit |may |still |fail |to |detect |fraud.
1-5
1-4
