Solution Manual for Principles of Auditing and Other Assurance Services, 23rd Edition 2024, by Ray Whittington, Kurt Pany, All Chapters 1 - 21, Complete Newest Version

SOLUTION MANUAL FOR
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Principles Of Auditing And Other Assurance Services
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23rd Edition By Ray Whittington Kurt
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ALL Chapters (1 - 21)
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,  Table of Contents mi mi




Chapter 1: The Role of the Public Accountant in the AmericanEconomy
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Chapter 2: Professional Standards
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Chapter 3: Professional Ethics
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Chapter 4: Legal Liability of CPAs
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Chapter 5: Audit Evidence and Documentation
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Chapter 6: Audit Planning, Understanding the Client, AssessingRisks, and Responding
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Chapter 7: Internal Control
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Chapter 8: Consideration of Internal Control in an InformationTechnology Environment
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Chapter 9: Audit Sampling
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Chapter 10: Cash and Financial Investments
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Chapter 11: Accounts Receivable, Notes Receivable, andRevenue
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Chapter 12: Inventories and Cost of Goods Sold
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Chapter 13: Property, Plant, and Equipment: Depreciation andDepletion
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Chapter 14: Accounts Payable and Other Liabilities
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Chapter 15: Debt and Equity Capital
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Chapter 16: Auditing Operations and Completing the Audit
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Chapter 17: Auditors’ Reports
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Chapter 18: Integrated Audits of Public Companies
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Chapter 19: Additional Assurance Services: Historical FinancialInformation
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Chapter 20: Additional Assurance Services: Other Information
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Chapter 21: Internal, Operational, and Compliance Auditing
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,CHAPTER 1 mi




The Role of the Publ mi mi mi mi




ic Accountant in the
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American Economy mi




Review Questions
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1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated their previously
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issued financial statements as a result of accounting irregularities and fraud. Especially responsible
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were the very visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and c
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onstituted the largest companies in American history to do so. The extent of the accounting irregul
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arities and fraud being investigated and disclosed brought into question the effectiveness of financia
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l statement audits. In addition, the criminal conviction of Arthur Andersen, LLP, one of the then Bi
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g 5 accounting firms, on charges of destroying documents related to the Enron case brought into q
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uestion the ethics standards of the profession.
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1-2 Assurance services are professional services that enhance the quality of information, or its context
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, for decision-
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making. The two types are: (a) those that increase the reliability of information and (b) those that
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involve putting information in a form or context that facilitates decision-making.
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1-3 A financial statement audit is, by far, the most common type of attest engagement. The overall ass
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ertion, made by management, most frequently is that the financial statements follow generally accepte
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d accounting principles.
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1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock e
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xchange and by the rules of the Securities and Exchange Commission to provide an audit report wi
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th the annual financial statements furnished to its stockholders. It also is required to engage the audi
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tors to provide an opinion on its internal control. Apart from legal requirements, however, a large
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listed corporation recognizes that it must maintain investor confidence in the reliability of its financi
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al statements and internal control over financial reporting if it is to continue to be able to secure
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capital from the public. The report by a firm of certified public accountants adds credibility to the fi
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nancial statements prepared by the corporation. When a small family-
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owned enterprise elects to have an audit, the purpose usually is to use the auditors' report to support
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mian application for a bank loan.
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, 1-5 A report by an independent public accountant concerning the fairness of a company's financial state
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ments is commonly required in the following situations:
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(1) Application for a bank loan. mi mi mi mi


(2) Establishing credit for purchase of merchandise, equipment, or other assets.
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(3) Reporting operating results, financial position, and cash flows to absentee owners (stockho
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lders or partners). m
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(4) Issuance of securities by a corporation.
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(5) Annual financial statements by a corporation with securities listed on a stock exchange or
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traded over the counter. m
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(6) Sale of an ongoing business.
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(7) Termination of a partnership. mi mi mi




1-6 To add credibility to financial statements is to increase the likelihood that they have been prepared
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following the appropriate criteria, usually generally accepted accounting principles. As such, an incr
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ease in credibility results in financial statements that can be believed and relied upon by third parties
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.

1-7 Business risk is the risk that the investment will be impaired because a company invested in is un
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able to meet its financial obligations due to economic conditions or poor management decisions. Inf
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ormation risk is the risk that the information used to assess business risk is not accurate. Auditor
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s can directly reduce information risk, but have only limited effect on business risk.
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1-8 At the beginning of the century, the principal objective of auditing was the prevention and detection
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of fraud. Audit work centered on the balance sheet, because the income statement was regarded as
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highly confidential and not for public disclosure. Today, the principal objective of auditing is to
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form an opinion on the fairness of financial statements and their conformity with generally accepted
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accounting principles. But the professional standards also require that an audit be designed to prov
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ide reasonable assurance of detecting material misstatements, due to errors or fraud. Particular em
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phasis is placed on the income statement which is of great importance to investors. Auditing today
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also has the objectives of meeting the requirements of the Securities and Exchange Commission (SE
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C) and the Public Company Accounting Oversight Board for public companies.
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1-9 The statement is incorrect. The increasing integrated databases of today, along with available
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audit procedures make audited entire populations a possibility in many situations.
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1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of a
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n organization. It involves more subjective judgments than a compliance audit or an audit of fin
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ancial statements because the criteria of effectiveness and efficiency of departmental performanc
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e are not as clearly established as are many laws and regulations or generally accepted accountin
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g principles.
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The report prepared after completion of an operational audit is usually directed to manage
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ment of the organization in which the audit work was done.
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1-11 A compliance audit is an audit to determine whether financial reports or other assertions are in co
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mpliance with established criteria. The necessary ingredients are verifiable data and the existence o
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f standards established by an authoritative body. An operational audit, on the other hand, is a revi
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ew of a department or other unit of a business or governmental organization to measure the effecti
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veness and efficiency of operations. Internal auditors often perform operational audits as do audito
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rs employed by the Government Accountability Office (GAO) of the federal government.
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1-12 Internal auditors must be independent of the department heads and other line executives whose wor
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