SOLUTION MANUAL FOR
s s
Principles Of Auditing And Other Assurance Services
s s s s s s s s
23rd Edition By Ray Whittington Kurt
s s s s s s
ALL Chapters (1 - 21)
s s s s
, Table of Contents
s s
Chapters1:sThesRolesofsthesPublicsAccountantsinsthesAmericanEconomy
Chapters2:sProfessionalsStandards
Chapters3:sProfessionalsEthics
Chapters4:sLegalsLiabilitysofsCPAs
Chapters5:sAuditsEvidencesandsDocumentation
Chapters6:sAuditsPlanning,sUnderstandingsthesClient,sAssessingRisks,sandsResponding
Chapters7:sInternalsControl
Chapters8:sConsiderationsofsInternalsControlsinsansInformationTechnologysEnvironment
Chapters9:sAuditsSampling
Chapters10:sCashsandsFinancialsInvestments
Chapters11:sAccountssReceivable,sNotessReceivable,sandRevenue
Chapters12:sInventoriessandsCostsofsGoodssSold
Chapters13:sProperty,sPlant,sandsEquipment:sDepreciationsandDepletion
Chapters14:sAccountssPayablesandsOthersLiabilities
Chapters15:sDebtsandsEquitysCapital
Chapters16:sAuditingsOperationssandsCompletingsthesAudit
Chapters17:sAuditors’sReports
Chapters18:sIntegratedsAuditssofsPublicsCompanies
Chapters19:sAdditionalsAssurancesServices:sHistoricalsFinancialInformation
Chapters20:sAdditionalsAssurancesServices:sOthersInformation
Chapters21:sInternal,sOperational,sandsCompliancesAuditing
,CHAPTER 1 s
The Role of the Publi
s s s s
c Accountant in the
s s s
American Economy s
ReviewsQuestions
1-1 Thes―crisissofscredibility‖slargelysarosesfromsthesnumbersofscompaniessthatsrestatedstheirspreviouslysissueds
financialsstatementssassasresultsofs accountingsirregularitiessandsfraud.s Especiallysresponsiblesweresthesverys
visiblesEnronsandsWorldComsfraudscases.sBothscompaniess filedsforsbankruptcysandsconstitutedstheslargest
s companiess insAmericanshistorystosdosso.s Thesextents ofs thesaccountingsirregularitiess andsfraudsbeingsinvest
igatedsandsdisclosedsbroughtsintosquestionstheseffectivenesssofsfinancialsstatementsaudits.s Insaddition,sthesc
riminalsconvictionsofsArthursAndersen,sLLP,sonesofsthesthensBigs5saccountingsfirms,sonschargessofsdestroy
ingsdocumentssrelatedstosthesEnronscasesbroughtsintosquestionsthesethicssstandardssofsthesprofession.
1-2 Assurancesservicessaresprofessionalsservicessthatsenhancesthesqualitysofsinformation,sorsitsscontext,sforsd
ecision-
making.sThestwostypessare:s(a)sthosesthatsincreasesthesreliabilitysofsinformationsands(b)sthosesthatsinvolv
esputtingsinformationsinsasformsorscontextsthatsfacilitatessdecision-making.
1-3 Asfinancialsstatementsauditsis,sbysfar,sthesmostscommonstypesofsattestsengagement.s Thesoverallsassertion,sm
adesbysmanagement,smostsfrequentlysissthatsthesfinancialsstatementssfollowsgenerallysacceptedsaccountings
principles.
1-4 Aslargescorporationswithssecuritiesslistedsonsasstocksexchangesissrequiredsbysthesrulessofsthesstocksexchange
sandsbysthesruless ofs thesSecuritiess andsExchangesCommissionstosprovidesansaudits reports withs thesannualsfina
ncialsstatementssfurnishedstositssstockholders.s Itsalsosissrequiredstosengagesthesauditorsstosprovidesansopini
onsonsitssinternalscontrol.sApartsfromslegalsrequirements,showever,saslargeslistedscorporationsrecognizesst
hatsitsmustsmaintainsinvestorsconfidencesinsthesreliabilitysofsitssfinancialsstatementss ands internalscontrolsov
ers financialsreportings ifs its iss toscontinuestosbesablestossecurescapitalsfromsthespublic.sThesreports bysasfirmsof
s certifiedspublicsaccountantss addss credibilitystosthesfinancialsstatementss preparedsbysthescorporation.s When
sas smallsfamily-
ownedsenterpriseselectss toshavesansaudit,sthespurposesusuallysisstosusesthesauditors'sreportstossupportsansappl
ications forsasbanksloan.
, 1-5 Asreportsbysansindependentspublicsaccountantsconcerningsthesfairnesssofsascompany'ss financialsstatementssi
sscommonlysrequiredsinsthesfollowingssituations:
(1) Applicationsforsasbanksloan.
(2) Establishingscredits forspurchasesofs merchandise,sequipment,sorsothersassets.
(3) Reportingsoperatingsresults,sfinancialsposition,sandscashsflowss tosabsenteesownerss (stockholderss
orspartners).
(4) Issuancesofssecuritiessbysascorporation.
(5) Annualsfinancialsstatementss bysascorporationswithssecuritiess listedsonsasstocksexchangesorstradedso
versthescounter.
(6) Salesofsansongoingsbusiness.
(7) Terminationsofs as partnership.
1-6 Tosaddscredibilitystosfinancialsstatementssisstosincreasestheslikelihoodsthatstheyshavesbeenspreparedsfollowi
ngsthesappropriatescriteria,susuallysgenerallysacceptedsaccountingsprinciples.s Asssuch,sansincreasesinscredib
ilitysresultssinsfinancialsstatementssthatscansbesbelievedsandsreliedsuponsbysthirdsparties.
1-7 Businesssrisksissthesrisksthats thesinvestmentswillsbesimpairedsbecausesascompanysinvestedsinsiss unablestos
meetsitssfinancialsobligationssduestoseconomicsconditionssorspoorsmanagementsdecisions.sInformationsris
ksissthesrisksthatsthesinformationsusedstosassesssbusinesssrisksissnotsaccurate.sAuditorsscansdirectlysreduc
esinformationsrisk,sbutshavesonlyslimitedseffectsonsbusinesssrisk.
1-8 Atsthesbeginningsofsthescentury,sthesprincipalsobjectivesofsauditingswassthespreventionsandsdetectionsofsfrau
d.sAuditsworkscenteredsonsthesbalancessheet,sbecausesthesincomesstatementswassregardedsasshighlysconfide
ntialsandsnots forspublicsdisclosure.s Today,sthesprincipalsobjectivesofsauditingsiss tosformsansopinionsonsthes
fairnesssofsfinancialsstatementssandstheirsconformityswithsgenerallysacceptedsaccountingsprinciples.s Buts th
esprofessionalsstandardssalsosrequiresthatsansaudits besdesignedstosprovidesreasonablesassurancesofsdetecting
s materials misstatements,s dues tos errorss ors fraud.s Particulars emphasiss iss placeds onsthesincomesstatements whi
chsissofsgreatsimportancestosinvestors.s Auditingstodaysalsoshassthesobjectivessofsmeetingsthesrequirementsso
fsthesSecuritiessandsExchangesCommissions(SEC)s andsthesPublicsCompanysAccountingsOversightsBoards
forspublicscompanies.
1-9 Thesstatements issincorrect.sThesincreasingsintegratedsdatabasessofs today,salongswithsavailablesauditsp
roceduressmakesauditedsentirespopulationssaspossibilitysinsmanyssituations.
1-10 Ansoperationalsauditsattemptsstosmeasurestheseffectivenesssandsefficiencysofsasspecificsunitsofsansorgan
ization.s Itsinvolvess moressubjectivesjudgmentssthansascompliancesauditsorsansauditsofsfinancialsstateme
ntssbecausesthescriteriasofseffectivenesssandsefficiencysofs departmentalsperformancesaresnots assclearlyse
stablishedsassaresmanyslawssandsregulationssorsgenerallysacceptedsaccountingsprinciples.
Thesreports preparedsafterscompletionsofsansoperationalsaudits iss usuallysdirectedstosmanagementsofs
thesorganizationsinswhichsthesauditsworkswassdone.
1-11 Ascompliancesauditsissansauditstosdetermineswhethersfinancialsreportssorsothersassertionssaresinscomplianc
eswithsestablishedscriteria.s Thesnecessarysingredientssaresverifiablesdatasandsthesexistencesofsstandardssest
ablishedsbysansauthoritativesbody.s Ansoperationalsaudit,sonsthesothershand,siss asreviewsofsasdepartmentsors
othersunitsofsasbusinesss orsgovernmentalsorganizationstosmeasurestheseffectivenesssandsefficiencysofsoper
ations.s Internalsauditorssoftensperformsoperationalsauditss assdosauditorssemployedsbysthesGovernmentsA
ccountabilitysOffices(GAO)sofsthesfederalsgovernment.
1-12 Internalsauditorss mustsbesindependentsofsthesdepartmentsheadssandsotherslinesexecutivesswhosesworkstheysr
eview.sHowever,sinternalsauditorssaresnotsindependentsinsthessamessensesassaspublicsaccountingsfirm.
s s
Principles Of Auditing And Other Assurance Services
s s s s s s s s
23rd Edition By Ray Whittington Kurt
s s s s s s
ALL Chapters (1 - 21)
s s s s
, Table of Contents
s s
Chapters1:sThesRolesofsthesPublicsAccountantsinsthesAmericanEconomy
Chapters2:sProfessionalsStandards
Chapters3:sProfessionalsEthics
Chapters4:sLegalsLiabilitysofsCPAs
Chapters5:sAuditsEvidencesandsDocumentation
Chapters6:sAuditsPlanning,sUnderstandingsthesClient,sAssessingRisks,sandsResponding
Chapters7:sInternalsControl
Chapters8:sConsiderationsofsInternalsControlsinsansInformationTechnologysEnvironment
Chapters9:sAuditsSampling
Chapters10:sCashsandsFinancialsInvestments
Chapters11:sAccountssReceivable,sNotessReceivable,sandRevenue
Chapters12:sInventoriessandsCostsofsGoodssSold
Chapters13:sProperty,sPlant,sandsEquipment:sDepreciationsandDepletion
Chapters14:sAccountssPayablesandsOthersLiabilities
Chapters15:sDebtsandsEquitysCapital
Chapters16:sAuditingsOperationssandsCompletingsthesAudit
Chapters17:sAuditors’sReports
Chapters18:sIntegratedsAuditssofsPublicsCompanies
Chapters19:sAdditionalsAssurancesServices:sHistoricalsFinancialInformation
Chapters20:sAdditionalsAssurancesServices:sOthersInformation
Chapters21:sInternal,sOperational,sandsCompliancesAuditing
,CHAPTER 1 s
The Role of the Publi
s s s s
c Accountant in the
s s s
American Economy s
ReviewsQuestions
1-1 Thes―crisissofscredibility‖slargelysarosesfromsthesnumbersofscompaniessthatsrestatedstheirspreviouslysissueds
financialsstatementssassasresultsofs accountingsirregularitiessandsfraud.s Especiallysresponsiblesweresthesverys
visiblesEnronsandsWorldComsfraudscases.sBothscompaniess filedsforsbankruptcysandsconstitutedstheslargest
s companiess insAmericanshistorystosdosso.s Thesextents ofs thesaccountingsirregularitiess andsfraudsbeingsinvest
igatedsandsdisclosedsbroughtsintosquestionstheseffectivenesssofsfinancialsstatementsaudits.s Insaddition,sthesc
riminalsconvictionsofsArthursAndersen,sLLP,sonesofsthesthensBigs5saccountingsfirms,sonschargessofsdestroy
ingsdocumentssrelatedstosthesEnronscasesbroughtsintosquestionsthesethicssstandardssofsthesprofession.
1-2 Assurancesservicessaresprofessionalsservicessthatsenhancesthesqualitysofsinformation,sorsitsscontext,sforsd
ecision-
making.sThestwostypessare:s(a)sthosesthatsincreasesthesreliabilitysofsinformationsands(b)sthosesthatsinvolv
esputtingsinformationsinsasformsorscontextsthatsfacilitatessdecision-making.
1-3 Asfinancialsstatementsauditsis,sbysfar,sthesmostscommonstypesofsattestsengagement.s Thesoverallsassertion,sm
adesbysmanagement,smostsfrequentlysissthatsthesfinancialsstatementssfollowsgenerallysacceptedsaccountings
principles.
1-4 Aslargescorporationswithssecuritiesslistedsonsasstocksexchangesissrequiredsbysthesrulessofsthesstocksexchange
sandsbysthesruless ofs thesSecuritiess andsExchangesCommissionstosprovidesansaudits reports withs thesannualsfina
ncialsstatementssfurnishedstositssstockholders.s Itsalsosissrequiredstosengagesthesauditorsstosprovidesansopini
onsonsitssinternalscontrol.sApartsfromslegalsrequirements,showever,saslargeslistedscorporationsrecognizesst
hatsitsmustsmaintainsinvestorsconfidencesinsthesreliabilitysofsitssfinancialsstatementss ands internalscontrolsov
ers financialsreportings ifs its iss toscontinuestosbesablestossecurescapitalsfromsthespublic.sThesreports bysasfirmsof
s certifiedspublicsaccountantss addss credibilitystosthesfinancialsstatementss preparedsbysthescorporation.s When
sas smallsfamily-
ownedsenterpriseselectss toshavesansaudit,sthespurposesusuallysisstosusesthesauditors'sreportstossupportsansappl
ications forsasbanksloan.
, 1-5 Asreportsbysansindependentspublicsaccountantsconcerningsthesfairnesssofsascompany'ss financialsstatementssi
sscommonlysrequiredsinsthesfollowingssituations:
(1) Applicationsforsasbanksloan.
(2) Establishingscredits forspurchasesofs merchandise,sequipment,sorsothersassets.
(3) Reportingsoperatingsresults,sfinancialsposition,sandscashsflowss tosabsenteesownerss (stockholderss
orspartners).
(4) Issuancesofssecuritiessbysascorporation.
(5) Annualsfinancialsstatementss bysascorporationswithssecuritiess listedsonsasstocksexchangesorstradedso
versthescounter.
(6) Salesofsansongoingsbusiness.
(7) Terminationsofs as partnership.
1-6 Tosaddscredibilitystosfinancialsstatementssisstosincreasestheslikelihoodsthatstheyshavesbeenspreparedsfollowi
ngsthesappropriatescriteria,susuallysgenerallysacceptedsaccountingsprinciples.s Asssuch,sansincreasesinscredib
ilitysresultssinsfinancialsstatementssthatscansbesbelievedsandsreliedsuponsbysthirdsparties.
1-7 Businesssrisksissthesrisksthats thesinvestmentswillsbesimpairedsbecausesascompanysinvestedsinsiss unablestos
meetsitssfinancialsobligationssduestoseconomicsconditionssorspoorsmanagementsdecisions.sInformationsris
ksissthesrisksthatsthesinformationsusedstosassesssbusinesssrisksissnotsaccurate.sAuditorsscansdirectlysreduc
esinformationsrisk,sbutshavesonlyslimitedseffectsonsbusinesssrisk.
1-8 Atsthesbeginningsofsthescentury,sthesprincipalsobjectivesofsauditingswassthespreventionsandsdetectionsofsfrau
d.sAuditsworkscenteredsonsthesbalancessheet,sbecausesthesincomesstatementswassregardedsasshighlysconfide
ntialsandsnots forspublicsdisclosure.s Today,sthesprincipalsobjectivesofsauditingsiss tosformsansopinionsonsthes
fairnesssofsfinancialsstatementssandstheirsconformityswithsgenerallysacceptedsaccountingsprinciples.s Buts th
esprofessionalsstandardssalsosrequiresthatsansaudits besdesignedstosprovidesreasonablesassurancesofsdetecting
s materials misstatements,s dues tos errorss ors fraud.s Particulars emphasiss iss placeds onsthesincomesstatements whi
chsissofsgreatsimportancestosinvestors.s Auditingstodaysalsoshassthesobjectivessofsmeetingsthesrequirementsso
fsthesSecuritiessandsExchangesCommissions(SEC)s andsthesPublicsCompanysAccountingsOversightsBoards
forspublicscompanies.
1-9 Thesstatements issincorrect.sThesincreasingsintegratedsdatabasessofs today,salongswithsavailablesauditsp
roceduressmakesauditedsentirespopulationssaspossibilitysinsmanyssituations.
1-10 Ansoperationalsauditsattemptsstosmeasurestheseffectivenesssandsefficiencysofsasspecificsunitsofsansorgan
ization.s Itsinvolvess moressubjectivesjudgmentssthansascompliancesauditsorsansauditsofsfinancialsstateme
ntssbecausesthescriteriasofseffectivenesssandsefficiencysofs departmentalsperformancesaresnots assclearlyse
stablishedsassaresmanyslawssandsregulationssorsgenerallysacceptedsaccountingsprinciples.
Thesreports preparedsafterscompletionsofsansoperationalsaudits iss usuallysdirectedstosmanagementsofs
thesorganizationsinswhichsthesauditsworkswassdone.
1-11 Ascompliancesauditsissansauditstosdetermineswhethersfinancialsreportssorsothersassertionssaresinscomplianc
eswithsestablishedscriteria.s Thesnecessarysingredientssaresverifiablesdatasandsthesexistencesofsstandardssest
ablishedsbysansauthoritativesbody.s Ansoperationalsaudit,sonsthesothershand,siss asreviewsofsasdepartmentsors
othersunitsofsasbusinesss orsgovernmentalsorganizationstosmeasurestheseffectivenesssandsefficiencysofsoper
ations.s Internalsauditorssoftensperformsoperationalsauditss assdosauditorssemployedsbysthesGovernmentsA
ccountabilitysOffices(GAO)sofsthesfederalsgovernment.
1-12 Internalsauditorss mustsbesindependentsofsthesdepartmentsheadssandsotherslinesexecutivesswhosesworkstheysr
eview.sHowever,sinternalsauditorssaresnotsindependentsinsthessamessensesassaspublicsaccountingsfirm.
