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

SOLUTION MANUAL FOR
Principles Of Auditing And Other Assurance Services

23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)

,  Table of Contents CX CX




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 C X




The Role of the Publi CX CX C X CX




c Accountant in the C X C X C X




American Economy C X




ReviewQuestions
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1-1 The ―crisis of credibility‖ largelyarose from the number of companies that restated their previously issued finan
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cial statements as a result of accounting irregularities and fraud. Especially responsible werethe very visible E
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nron and WorldCom fraud cases. Both companies filed for bankruptcy and constituted the largest companies i
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n American history to do so. The extent of the accounting irregularities and fraud being investigated and disclos
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ed brought into question the effectiveness of financial statement audits. In addition, the criminal conviction of
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Arthur Andersen, LLP, one of the then Big 5 accounting firms, on charges of destroying documents related to th
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e Enron case brought into question the ethics standards of theprofession.
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1-2 Assurance services are professional services that enhance the quality of information, or its context, for decisi
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on-
making. The two types are: (a) those that increase the reliability of information and (b) those thatinvolveputti
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nginformationinaformorcontextthat 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 assertion,made b
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y management, most frequently is that the financial statements follow generally accepted accounting principles
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.

1-4 A large corporation with securities listed on a stock exchange is required bythe rules of the stock exchange and by
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the rules of the Securities and Exchange Commission to provide an audit report with theannual financial statem
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ents furnished to its stockholders. It also is required to engage the auditors to provide an opinion on its internal c
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ontrol. Apart from legal requirements, however, a large listed corporation recognizes that it must maintain inve
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stor confidence in the reliabilityof its financial statements and internal control over financial reporting if it is to
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continue to be able to secure capital from the public. The report by a firm of certified public accountants adds cre
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dibility to the financial 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 an applicatio
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n 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 statementsis co
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mmonlyrequired in thefollowingsituations: XC CX CX CX CX




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




(2) Establishing credit for purchase of merchandise, equipment, or other assets. CX C X CX CX C X CX CX CX CX




(3) Reporting operating results, financial position, and cash flows to absentee owners (stockholdersor p CX CX CX CX CX CX CX C X CX CX C X XC CX




artners).
(4) Issuance of securities by a corporation. CX CX CX CX CX




(5) Annual financial statements by a corporation with securities listed on a stock exchange or tradedover t CX CX C X CX CX CX CX C X CX CX CX CX CX CX XC CX




hecounter. CX




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




(7) Termination of a partnership. CX C X C X




1-6 To add credibility to financial statements is to increase the likelihood that theyhave been prepared following the
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appropriate criteria, usually generally accepted accounting principles. As such, an increasein credibilityresult CX CX CX CX CX CX C X CX CX CX XC CX CX




s in financial statements that can be believed and relied upon bythird parties.
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1-7 Business risk is the risk that the investment will be impaired because a company invested in is unable tomeet it CX CX CX CX CX CX CX CX CX CX CX CX CX CX CX CX C X CX XC CX




s financial obligations due to economic conditions or poor management decisions. Information risk is the risk t
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hat the information used to assess business risk is not accurate. Auditors can directly reduce information risk,
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but have onlylimited 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 of fraud. Au
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dit work centered on the balance sheet, because the income statement was regarded as highly confidential and no
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t for public disclosure. Today, the principal objective of auditing is to form an opinion on the fairness of financ
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ial statements and their conformity with generallyaccepted accounting principles. But the professional standar
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ds also require that an audit be designed to provide reasonable assurance of detecting material misstatements, d
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ue to errors or fraud. Particular emphasis is placed on the income statement which is of great importance to in
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vestors. Auditing today also has the objectives ofmeeting the requirements of the Securities and Exchange Com
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mission (SEC) and the Public Company AccountingOversight Board for publiccompanies. CX C X CX CX CX CX CX CX CX CX XC




1-9 The statement is incorrect. The increasing integrated databases of today, along with available auditproc
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edures makeauditedentirepopulations a possibilityinmanysituations. CX XC XC XC CX CX XC XC XC




1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of an organizatio
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n. It involves more subjective judgments than a compliance audit or an audit of financial statements becaus
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e the criteria of effectiveness and efficiency of departmental performance are not asclearly established as ar
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e many laws and regulations or generallyaccepted accounting principles.
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The report prepared after completion of an operational audit is usually directed to managementof the CX C X CX CX CX CX CX CX C X C X CX CX CX XC CX XC




organizationin whichtheaudit work was done. CX CX CX XC CX CX CX




1-11 A compliance audit is an audit to determine whether financial reports or other assertions are in compliance with
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established criteria. The necessary ingredients are verifiable data and the existence of standards established b
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y an authoritative body. An operational audit, on the other hand, is a review of adepartment or other unit of a b
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usiness or governmental organization to measure the effectiveness and efficiency of operations. Internal audit
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ors often perform operational audits as do auditors employed by theGovernment AccountabilityOffice(GA
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O) ofthefederalgovernment. CX CX XC XC




1-12 Internal auditors must be independent of the department heads and other line executives whose work theyrevie
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w. However, internal auditors are not independent in the same sense as a public accounting firm.
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