Solution Manual for Principles of Auditing and Other Assurance Services, 23rd Edition 2025, by Ray Whittington, Kurt Pany, All Chapters 1 - 21, Complete Newest Version

SOLUTION MANUAL FOR
v v




Principles Of Auditing And Other Assurance Services
v v v v v v v v




23rdEdition
ALL Chapters (1 - 21)
v v v v

,  TableofContents f
g f
g




Chapter 1: The Role of the Public Accountant in the
gf gf gf gf gf gf gf gf gf




gf AmericanEconomy Chapter 2: Professional Standards gf gf gf gf




Chapter 3: Professional Ethics
gf gf gf




gf Chapter 4: Legal Liability of CPAs
gf gf gf gf gf




Chapter 5: Audit Evidence and Documentation
gf gf gf gf gf




Chapter 6: Audit Planning, Understanding the Client, AssessingRisks, and Responding
gf gf gf gf gf gf gf gf gf




gf Chapter 7: Internal Control
gf gf gf




Chapter 8: Consideration of Internal Control in an InformationTechnology Environment
gf gf gf gf gf gf gf gf gf




gf Chapter 9: Audit Sampling
gf gf gf




Chapter 10: Cash and Financial Investments
gf gf gf gf gf




Chapter 11: Accounts Receivable, Notes Receivable, andRevenue
gf gf gf gf gf gf




gf Chapter 12: Inventories and Cost of Goods Sold
gf gf gf gf gf gf gf




Chapter 13: Property, Plant, and Equipment: Depreciation andDepletion
gf gf gf gf gf gf gf




gf Chapter 14: Accounts Payable and Other Liabilities
gf gf gf gf gf gf




Chapter 15: Debt and Equity Capital
gf gf gf gf gf




Chapter 16: Auditing Operations and Completing the Audit
gf gf gf gf gf gf gf




gf Chapter 17: Auditors’ Reports
gf gf gf




Chapter 18: Integrated Audits of Public Companies
gf gf gf gf gf gf




Chapter 19: Additional Assurance Services: Historical FinancialInformation
gf gf gf gf gf gf




gf Chapter 20: Additional Assurance Services: Other Information
gf gf gf gf gf gf




Chapter 21: Internal, Operational, and Compliance Auditing
gf gf gf gf gf gf

,CHAPTER1 gf




The Role of the gf gf gf




gf PublicAccountant in the gf gf gf




American Economy gf




Review Questions
gf




1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated their
gf gf gf gf gf gf gf gf gf gf gf gf gf



previously issued financial statements as a result of accounting irregularities and fraud.
gf gf gf gf gf gf gf gf g f gf gf gf



Especially responsible were the very visible Enron and WorldCom fraud cases. Both companies
g f gf gf v gf gf gf gf gf gf gf gf gf



filed for bankruptcy and constituted the largest companies in American history to do so. The
gf gf gf gf gf gf gf gf gf gf gf gf gf gf g f



extent of the accounting irregularities and fraud being investigated and disclosed brought into
gf gf gf gf gf gf gf gf gf gf gf gf gf



question the effectiveness of financial statement audits. In addition, the criminal conviction of
gf gf gf gf gf gf gf g f gf gf gf gf gf



Arthur Andersen, LLP, one of the then Big 5 accounting firms, on charges of destroying
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



documents related to the Enron case brought into question the ethics standards of the profession.
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf




1-2 Assurance services are professional services that enhance the quality of information, or its context,
gf gf gf gf gf gf gf gf gf gf gf gf gf



for decision-making. The two types are: (a) those that increase the reliability of information and (b)
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



those that involve putting information in a form or context that facilitates decision-making.
gf gf g f gf gf gf gf g f gf gf g f g f g f




1-3 A financial statement audit is, by far, the most common type of attest engagement. The overall
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



assertion,made by management, most frequently is that the financial statements follow
gf gf gf gf gf gf gf gf gf gf gf



generally accepted accounting principles.
gf gf gf gf




1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock
gf gf gf gf g f gf gf gf gf gf g f gf gf gf g f gf gf



exchange and by the rules of the Securities and Exchange Commission to provide an audit report
gf gf gf gf gf gf gf gf g f gf gf gf gf gf gf gf



with theannual financial statements furnished to its stockholders. It also is required to engage the
g f gf gf gf gf gf gf gf g f gf gf gf gf gf gf



auditors to provide an opinion on its internal control. Apart from legal requirements, however, a large
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



listed corporation recognizes that it must maintain investor confidence in the reliability of its
gf g f gf gf gf gf gf gf gf gf gf gf gf gf



financial statements and internal control over financial reporting if it is to continue to be
gf gf g f g f gf gf g f gf g f g f g f g f g f gf gf



able to secure capital from the public. The report by a firm of certified public accountants adds
gf gf g f gf gf gf gf gf gf gf gf gf gf gf gf gf gf



credibility to the financial statements prepared by the corporation. When a small family-owned
gf gf gf gf gf gf gf gf gf g f gf gf gf



enterprise elects to have an audit, the purpose usually is to use the auditors' report to support an
gf gf gf gf gf gf gf gf gf gf g f gf gf gf gf g f gf g f



application for a bank loan.
gf g f g f gf gf

, 1-5 A report by an independent public accountant concerning the fairness of a company's financial
gf gf gf gf gf gf gf gf gf gf gf gf gf



statements is commonly required in the following situations:
gf v gf gf gf gf gf gf




(1) Application for a bank loan. gf gf gf gf



(2) Establishing credit for purchase of merchandise, equipment, or other assets. gf gf gf gf gf gf gf gf gf



(3) Reporting operating results, financial position, and cash flows to absentee owners
gf gf gf gf gf gf gf gf gf gf



(stockholdersor partners).
gf gf



(4) Issuance of securities by a corporation. gf gf gf gf gf



(5) Annual financial statements by a corporation with securities listed on a stock exchange or
gf gf gf gf gf gf gf gf gf gf gf gf gf



traded over the counter.
gf v gf gf



(6) Sale of an ongoing business. gf gf gf gf



(7) Termination of a partnership. gf gf gf




1-6 To add credibility to financial statements is to increase the likelihood that they have been
gf gf gf gf gf gf gf gf gf gf gf gf gf gf



prepared following the appropriate criteria, usually generally accepted accounting principles.
gf gf gf gf gf gf gf gf gf gf



As such, an increasein credibility results in financial statements that can be believed and relied
g f gf gf gf gf gf gf gf gf gf gf gf gf gf gf



upon by third parties.
gf gf gf gf




1-7 Business risk is the risk that the investment will be impaired because a company invested in is
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



unable tomeet its financial obligations due to economic conditions or poor management decisions.
gf gf gf gf gf gf gf gf gf gf gf gf gf



Information risk is the risk that the information used to assess business risk is not accurate. Auditors
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



gcan directly reduce information risk, but have only limited effect on business risk.
f gf gf gf gf gf gf gf gf gf gf gf gf




1-8 At the beginning of the century, the principal objective of auditing was the prevention and detection of
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



fraud. Audit work centered on the balance sheet, because the income statement was regarded as
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



highly confidential and not for public disclosure.
gf gf Today, the principal objective of auditing is gf gf g f g f gf g f g f gf gf gf g f gf



to form an opinion on the fairness of financial statements and their conformity with generally
g f gf gf gf gf gf gf gf gf gf gf gf gf gf gf



accepted accounting principles. But the professional standards also require that an audit be designed
gf gf gf g f gf gf gf gf gf gf gf gf g f gf



to provide reasonable assurance of detecting material misstatements, due to errors or fraud.
gf gf gf gf gf g f g f gf g f gf gf g f g f g f



Particular emphasis is placed on the income statement which is of great importance to
g f g f g f g f gf gf gf gf g f gf g f gf g f gf



investors. Auditing today also has the objectives ofmeeting the requirements of the Securities
gf g f gf gf gf g f gf g f gf gf g f gf gf



and Exchange Commission (SEC) and the Public Company Accounting Oversight Board for
g f gf gf gf g f gf gf g f g f gf g f gf



public companies.
gf gf




1-9 The statement is incorrect. The increasing integrated databases of today, along with
gf gf gf gf gf gf gf gf g f gf gf



available auditprocedures make audited entire populations a possibility in many
gf gf g f gf gf gf g f g f gf gf



situations.
gf




1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of an
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



organization. It involves more subjective judgments than a compliance audit or an audit of
gf gf gf gf gf gf gf gf gf gf gf gf gf gf



financial statements because the criteria of effectiveness and efficiency of departmental
gf gf gf gf gf gf gf gf gf gf gf



performance are not asclearly established as are many laws and regulations or generally accepted
gf gf gf gf gf gf gf gf gf gf gf gf gf gf



accounting principles.
gf gf



The report prepared after completion of an operational audit is usually directed to
gf gf gf gf gf gf gf gf gf gf gf gf



management of the organization in which the audit work was done.
gf gf gf gf gf gf gf gf g f gf g f




1-11 A compliance audit is an audit to determine whether financial reports or other assertions are in
gf gf gf gf gf gf gf gf gf gf gf gf gf gf gf



compliance with established criteria. The necessary ingredients are verifiable data and the existence
gf gf gf gf g f gf gf gf gf gf gf gf gf



of standards established by an authoritative body. An operational audit, on the other hand, is a
gf gf gf gf gf gf gf g f gf gf gf gf gf gf gf gf



review of adepartment or other unit of a business or governmental organization to measure the
gf gf gf g f gf gf g f gf gf g f gf gf gf gf gf



effectiveness
gf



and efficiency of operations. Internal auditors often perform operational audits as do
gf gf gf g f gf gf gf gf gf gf gf



auditors employed by the Government Accountability Office (GAO) of the federal
gf gf g f g f gf g f gf gf g f g f gf



government.
gf




1-12 Internal auditors must be independent of the department heads and other line executives whose work
gf gf gf gf gf gf gf gf gf gf gf gf gf gf