Solution Manual
Auditing And Assurance Services
By Timothy Louwers
8th Edition
,Complete Solution Manual For Auditing & Assurance Services, 8th Edition By
Timothy Louwers
Chapter 01
Auditing And Assurance Services
Learning Objectives
Review Multiple Exercises,
Checkpoints Choice Problems, And
Simulations
1. Define Information Risk And Explain 1, 2, 3 29, 31, 38 65*
How The Financial Statement
Auditing Process Helps To Reduce
This Risk, Thereby Reducing The
Cost Of Capital For A Company.
2. Define And Contrast Financial 4, 5, 6, 7, 8 23, 25, 28, 44, 60, 65*
Statement Auditing, Attestation, And 50
Assurance Services.
3. Describe And Define The Assertions 9, 10, 11 36, 39, 40, 41, 62, 63, 67
That Management Makes About The 45,
Recognition, Measurement, 46, 47, 48, 49,
Presentation, And Disclosure Of The 52,
Financial Statements And Explain 53, 54, 55, 57,
Why Auditors Use Them As A Focal 58,
Point Of The Audit. 59
4. Define Professional Skepticism And 12 24, 37 61
Explain Its Key Characteristics.
5. Describe The Organization Of Public 13, 14 30, 42, 56 64*
Accounting Firms And Identify The
Various Services That They Offer.
6. Describe The Audits And 15, 16, 17, 18 26, 27, 32, 34, 64*, 66
Auditors In Governmental, 35
Internal, And Operational
Auditing.
,7. List And Explain The Requirements 19, 20, 21, 22 33, 43, 51 68, 69
For Becoming A Certified Public
Accountant (Cpa) And Other
Certifications Available To An
Accounting Professional.
(*) Item Relates To Multiple Learning Objectives
Solutions For Review Checkpoints
1.1 Business Risk Is The Risk That An Entity Will Fail To Meet Its Business Objectives.
When Assessing Business Risk, A Professional Must Consider All Possible Threats To
An Entity‘S Goals And Objectives. Some Illustrative Examples Include The Risk That:
1) Its Existing Customers Will Start Buying Products Or Services From Its Primary
Competitors; 2) Its Product Lines Will Become Obsolete; 3) Its Taxes Will Increase; 4)
Key Government Contracts Will Be Lost; 5) Key Employees Will Leave The Entity; And
Many Other Examples Exist.
1.2 To Help Minimize Business Risk And Take Advantage Of Other Opportunities Presented
In Today‘S Competitive Business Environment, Decision Makers Such As Chief
Executive Officers (Ceos) Demand Timely, Relevant, And Reliable Information. There
Are At Least Four Environmental Conditions That Increase Demand For Reliable
Information. First, Complexity Which Implies That Events And Transactions In Today‘S
Global Business Environment Can Be Complicated. Most Investors Do Not Have The
Level Of Expertise Needed To Properly Account For Complex Transactions. Second Is
Remoteness Which Implies That Decision Makers Are Often Separated From Current
And Potential Business Relationships Due To Distance And Time. For Example,
Investors May Not Be Able To Visit Distant Locations To Check Up On Their
Investments. Third Is Time-Sensitivity Which Implies That In Today‘S Economic
Environment, Investors And Other Users Of Financial Statements Need To Make
Decisions More Rapidly Than Ever Before. As A Result, The Ability To Promptly
Obtain High-Quality Information Is Essential. Fourth Is A Consequence Which Implies
That Decisions May Very Well Involve Significant Investments. As A Result, The
Consequences Can Be Severe If Information Cannot Be Obtained
1.3 Of All The Different Risks Discussed In The Chapter Up To This Point, Information
Risk Is The One That Is Most Likely To Create The Demand For Independent And
Objective Assurance Services Is Information Risk Or The Probability That The
Information Circulated By An Entity Will Be False Or Misleading. Because The Primary
Source Of Information For Investors And Creditors Is The Company Itself, An Incentive
Exists For That Company‘S Management To Make Their Business Or Service Appear
To Be Better Than It Actually May Be, To Put Their Best Foot Forward. As A Result,
Preparers And Issuers Of Financial Information (Directors, Managers, Accountants, And
Other People Employed In A Business) Might Benefit By Giving False, Misleading, Or
Overly Optimistic Information. This Potential Conflict Of Interest Between Information
Providers And Users Which Provides The Underlying Basis For The Demand For
Reliable Information.
, 1.4 According To The American Accounting Association, ―Auditing Is A Systematic
Process Of Objectively Obtaining And Evaluating Evidence Regarding Assertions
About Economic Actions And Events To Ascertain The Degree Of Correspondence
Between The Assertions And Established Criteria And Communicating The Results To
Interested Users.‖ In Effect, Auditors Add Reliability To The Information That Is
Provided To Interested Users. Of Course, This Definition Is Focused On An External
Reporting Context. Students May Also Discuss How Governmental And Internal
Auditors Operate As Well.
In Response To ―What Do Auditors Do?‖ Students Can Respond By Stating That
Auditors (1) Obtain And Evaluate Evidence About Assertions Made By Management
About Economic Actions And Events, (2) Ascertain The Degree Of Correspondence
Between The Assertions And The Appropriate Reporting Framework, And (3) Issue An
Audit Report (Opinion). Students Can Also Respond More Generally By Stating That
Auditors Essentially Lend Credibility To The Financial Statements Presented By
Management.
1.5 An Attestation Engagement Is ―An Engagement In Which A Practitioner Is Engaged
To Issue Or Does Issue A Written Communication That Expresses A Conclusion About
The Reliability Of A Written Assertion That Is The Responsibility Of Another
Party‖(Ssae 10, At 101.01). To Attest Means To Lend Credibility Or To Vouch For The
Truth Or Accuracy Of The Statements That One Party Makes To Another. The Attest
Function Is A Term Often Applied To The Activities Of Independent Cpas When
Acting As Auditors Of Financial Statements.
1.6 An Assurance Services Engagement Is Any Assignment That Improves The Quality Of
Information, Or Its Context, For Decision Makers. Because Information (E.G., Financial
Statements) Are Prepared By Managers Of An Entity Who Have Authority And
Responsibility For Financial Success Or Failure, An Outsider May Be Skeptical That The
Information Truly Is Objective, Free From Bias, Fully Informative, And Free From
Material Error, Intentional Or Inadvertent. The Services Of An Independent Auditor
Helps Resolve Those Doubts Because The Auditor‘S Success Depends Upon His Or Her
Independent, Objective, And Competent Assessment Of The
Information (E.G., The Conformity Of The Financial Statements With The Appropriate
Reporting Framework). The Independent Auditor‘S Role Is To Lend Credibility To The
Information; Hence, The Outsider Will Likely Seek His Or Her Independent Opinion
About The Financial Statements.
1.7 An Assurance Service Engagement Is One That Improves The Quality Of Information,
Or Its Context, For Decision Makers. Thus, An Attestation Service Engagement Is One
Type Of An Assurance Service. Another Way Of Thinking About The Issue Is To
Remember That The Financial Statement Audit Engagement Is One Type Of An
Attestation Service. Please See Exhibit 1.3 In The Text Which Depicts The Relationship
Among Assurance, Attestation, And Auditing Engagements.
1.8 The Four Major Elements Of The Broad Definition Of Assurance Services Are
Auditing And Assurance Services
By Timothy Louwers
8th Edition
,Complete Solution Manual For Auditing & Assurance Services, 8th Edition By
Timothy Louwers
Chapter 01
Auditing And Assurance Services
Learning Objectives
Review Multiple Exercises,
Checkpoints Choice Problems, And
Simulations
1. Define Information Risk And Explain 1, 2, 3 29, 31, 38 65*
How The Financial Statement
Auditing Process Helps To Reduce
This Risk, Thereby Reducing The
Cost Of Capital For A Company.
2. Define And Contrast Financial 4, 5, 6, 7, 8 23, 25, 28, 44, 60, 65*
Statement Auditing, Attestation, And 50
Assurance Services.
3. Describe And Define The Assertions 9, 10, 11 36, 39, 40, 41, 62, 63, 67
That Management Makes About The 45,
Recognition, Measurement, 46, 47, 48, 49,
Presentation, And Disclosure Of The 52,
Financial Statements And Explain 53, 54, 55, 57,
Why Auditors Use Them As A Focal 58,
Point Of The Audit. 59
4. Define Professional Skepticism And 12 24, 37 61
Explain Its Key Characteristics.
5. Describe The Organization Of Public 13, 14 30, 42, 56 64*
Accounting Firms And Identify The
Various Services That They Offer.
6. Describe The Audits And 15, 16, 17, 18 26, 27, 32, 34, 64*, 66
Auditors In Governmental, 35
Internal, And Operational
Auditing.
,7. List And Explain The Requirements 19, 20, 21, 22 33, 43, 51 68, 69
For Becoming A Certified Public
Accountant (Cpa) And Other
Certifications Available To An
Accounting Professional.
(*) Item Relates To Multiple Learning Objectives
Solutions For Review Checkpoints
1.1 Business Risk Is The Risk That An Entity Will Fail To Meet Its Business Objectives.
When Assessing Business Risk, A Professional Must Consider All Possible Threats To
An Entity‘S Goals And Objectives. Some Illustrative Examples Include The Risk That:
1) Its Existing Customers Will Start Buying Products Or Services From Its Primary
Competitors; 2) Its Product Lines Will Become Obsolete; 3) Its Taxes Will Increase; 4)
Key Government Contracts Will Be Lost; 5) Key Employees Will Leave The Entity; And
Many Other Examples Exist.
1.2 To Help Minimize Business Risk And Take Advantage Of Other Opportunities Presented
In Today‘S Competitive Business Environment, Decision Makers Such As Chief
Executive Officers (Ceos) Demand Timely, Relevant, And Reliable Information. There
Are At Least Four Environmental Conditions That Increase Demand For Reliable
Information. First, Complexity Which Implies That Events And Transactions In Today‘S
Global Business Environment Can Be Complicated. Most Investors Do Not Have The
Level Of Expertise Needed To Properly Account For Complex Transactions. Second Is
Remoteness Which Implies That Decision Makers Are Often Separated From Current
And Potential Business Relationships Due To Distance And Time. For Example,
Investors May Not Be Able To Visit Distant Locations To Check Up On Their
Investments. Third Is Time-Sensitivity Which Implies That In Today‘S Economic
Environment, Investors And Other Users Of Financial Statements Need To Make
Decisions More Rapidly Than Ever Before. As A Result, The Ability To Promptly
Obtain High-Quality Information Is Essential. Fourth Is A Consequence Which Implies
That Decisions May Very Well Involve Significant Investments. As A Result, The
Consequences Can Be Severe If Information Cannot Be Obtained
1.3 Of All The Different Risks Discussed In The Chapter Up To This Point, Information
Risk Is The One That Is Most Likely To Create The Demand For Independent And
Objective Assurance Services Is Information Risk Or The Probability That The
Information Circulated By An Entity Will Be False Or Misleading. Because The Primary
Source Of Information For Investors And Creditors Is The Company Itself, An Incentive
Exists For That Company‘S Management To Make Their Business Or Service Appear
To Be Better Than It Actually May Be, To Put Their Best Foot Forward. As A Result,
Preparers And Issuers Of Financial Information (Directors, Managers, Accountants, And
Other People Employed In A Business) Might Benefit By Giving False, Misleading, Or
Overly Optimistic Information. This Potential Conflict Of Interest Between Information
Providers And Users Which Provides The Underlying Basis For The Demand For
Reliable Information.
, 1.4 According To The American Accounting Association, ―Auditing Is A Systematic
Process Of Objectively Obtaining And Evaluating Evidence Regarding Assertions
About Economic Actions And Events To Ascertain The Degree Of Correspondence
Between The Assertions And Established Criteria And Communicating The Results To
Interested Users.‖ In Effect, Auditors Add Reliability To The Information That Is
Provided To Interested Users. Of Course, This Definition Is Focused On An External
Reporting Context. Students May Also Discuss How Governmental And Internal
Auditors Operate As Well.
In Response To ―What Do Auditors Do?‖ Students Can Respond By Stating That
Auditors (1) Obtain And Evaluate Evidence About Assertions Made By Management
About Economic Actions And Events, (2) Ascertain The Degree Of Correspondence
Between The Assertions And The Appropriate Reporting Framework, And (3) Issue An
Audit Report (Opinion). Students Can Also Respond More Generally By Stating That
Auditors Essentially Lend Credibility To The Financial Statements Presented By
Management.
1.5 An Attestation Engagement Is ―An Engagement In Which A Practitioner Is Engaged
To Issue Or Does Issue A Written Communication That Expresses A Conclusion About
The Reliability Of A Written Assertion That Is The Responsibility Of Another
Party‖(Ssae 10, At 101.01). To Attest Means To Lend Credibility Or To Vouch For The
Truth Or Accuracy Of The Statements That One Party Makes To Another. The Attest
Function Is A Term Often Applied To The Activities Of Independent Cpas When
Acting As Auditors Of Financial Statements.
1.6 An Assurance Services Engagement Is Any Assignment That Improves The Quality Of
Information, Or Its Context, For Decision Makers. Because Information (E.G., Financial
Statements) Are Prepared By Managers Of An Entity Who Have Authority And
Responsibility For Financial Success Or Failure, An Outsider May Be Skeptical That The
Information Truly Is Objective, Free From Bias, Fully Informative, And Free From
Material Error, Intentional Or Inadvertent. The Services Of An Independent Auditor
Helps Resolve Those Doubts Because The Auditor‘S Success Depends Upon His Or Her
Independent, Objective, And Competent Assessment Of The
Information (E.G., The Conformity Of The Financial Statements With The Appropriate
Reporting Framework). The Independent Auditor‘S Role Is To Lend Credibility To The
Information; Hence, The Outsider Will Likely Seek His Or Her Independent Opinion
About The Financial Statements.
1.7 An Assurance Service Engagement Is One That Improves The Quality Of Information,
Or Its Context, For Decision Makers. Thus, An Attestation Service Engagement Is One
Type Of An Assurance Service. Another Way Of Thinking About The Issue Is To
Remember That The Financial Statement Audit Engagement Is One Type Of An
Attestation Service. Please See Exhibit 1.3 In The Text Which Depicts The Relationship
Among Assurance, Attestation, And Auditing Engagements.
1.8 The Four Major Elements Of The Broad Definition Of Assurance Services Are
