SOLUTION MANUAL for Auditing & Assurance Services A Systematic Approach 12th Edition by William Messier Jr, Steven Glover, Chapters 1 - 21 / Complete

SOLUTION MANUAL for Auditing & Assurance Services A
Systematic Approach

12th Edition by William Messier Jr, Steven Glover,
Chapters 1 - 21 / Complete




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,• TableLofLContents
ChapterL1:LAnLIntroductionLtoLAssuranceLandLFinancialLStatementLAuditing

ChapterL2:LTheLFinancialLStatementLAuditingLEnvironment

ChapterL3:LAuditLPlanning,LTypesLofLAuditLTests,LandLMateriality

ChapterL4:LRiskLAssessment

ChapterL5:LEvidenceLandLDocumentation

ChapterL6:LInternalLControlLinLaLFinancialLStatementLAudit

ChapterL7:LAuditingLInternalLControlLoverLFinancialLReporting

ChapterL8:LAuditLSampling:LAnLOverviewLandLApplicationLtoLTestsLofLControls

ChapterL9:LAuditLSampling:LAnLApplicationLtoLSubstantiveLTestsLofLAccountLBalances

ChapterL10:LAuditingLtheLRevenueLProcess

ChapterL11:LAuditingLtheLPurchasingLProcess

ChapterL12:LAuditingLtheLHumanLResourceLManagementLProcess

ChapterL13:LAuditingLtheLInventoryLManagementLProcess

ChapterL14:LAuditingLtheLFinancing/InvestingLProcess:PrepaidLExpenses,LIntangibleLAssets,LandLProperty,LPla
nt,LandLEquipment

ChapterL15:LAuditingLtheLFinancing/InvestingLProcess:Long-
TermLLiabilities,LStockholders’LEquity,LandLIncomeLStatementLAccounts

ChapterL16:LAuditingLtheLFinancing/InvestingLProcess:LCashandLInvestments

ChapterL17:LCompletingLtheLAuditLEngagement

ChapterL18:LReportsLonLAuditedLFinancialLStatements

ChapterL19:LProfessionalLConduct,LIndependence,LandLQualityLManagement

ChapterL20:LLegalLLiability

ChapterL21:LAssurance,LAttestation,LandLInternalLAuditingLServices
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,CHAPTERL1

ANL INTRODUCTIONL TOL ASSURANCEL ANDL FINANCIALL STATEMENTL AUDITING

AnswersLtoLReviewLQuestions

1-1 TheLstudyLofLauditingLisLmoreLconceptualLinLnatureLcomparedLtoLotherLaccount
ingLcourses.LRatherLthanLfocusingLonLlearningLtheLrules,Ltechniques,LandLcomputations
LrequiredLtoLprepareLfinancialLstatements,LauditingLemphasizesLlearningLaLframeworkLof
LanalyticalLandLlogicalLskillsLtoLevaluateLtheLrelevanceLandLreliabilityLofLtheLsystemsLan
dLprocessesLresponsibleLforLfinancialLinformation,LasLwellLasLtheLinformationLitself.LToL
beLsuccessful,LstudentsLmustLlearnLtheLframeworkLandLthenLlearnLtoLuseLlogicLandLco
mmonLsenseLinLapplyingLauditingLconceptsLtoLvariousLcircumstancesL andLsituations.
UnderstandingLauditingLcanLimproveLtheLdecisionLmakingLabilityLofLconsultants,Lb
usinessLmanagers,LandLaccountantsLbyLprovidingLaLframeworkLforLevaluatingLthe
LusefulnessLandLreliabilityLofLinformation.

1-2 ThereLisLaLdemandLforLauditingLinLaLfree-
marketLeconomyLbecauseLtheLagencyLrelationshipLbetweenLanLabsenteeLownerLandLa
LmanagerLproducesLaLnaturalLconflictLofLinterestLdueLtoLtheLinformationLasymmetryLth
atLexistsLbetweenLtheLownerLandLmanager.LAsLaLresult,LtheLagentLagreesLtoLbeLmon
itoredLasLpartLofLhis/herLemploymentLcontract.LAuditingLappearsLtoLbeLaLcost-
effectiveLformLofLmonitoring.
TheLempiricalLevidenceLsuggestsLauditingLwasLdemandedLpriorLtoLgovernmentLre
gulationLsuchLasLstatutoryLauditLrequirements.LAdditionally,LmanyLprivateLcompaniesLan
dLotherLentitiesLnotLsubjectLtoLgovernmentLauditingLregulationsLalsoLdemandLauditing.

1-3 TheLagencyLrelationshipLbetweenLanLownerLandLmanagerLproduces LaLnaturalLc
onflictLofLinterestLbecauseLofLdifferencesLinLtheLtwoLparties’LgoalsLandLbecauseLofLinf
ormationLasymmetryLthatLexistsLbetweenLthem.LThatLis,LtheLmanagerLgenerallyLhasLm
oreLinformationLaboutLtheL‘true’LfinancialLpositionLandLresultsLofLoperationsLofLtheLentit
yLthanLtheLabsenteeLownerLdoes.LIfLbothLpartiesLseekLtoLmaximizeLtheirLownLself-
interest,LitLisLlikelyLthatLtheLmanagerLwillLnotLactLinLtheLbestLinterestLofLtheLownerLa
ndLmayLmanipulateLtheLinformationLprovidedLtoLtheLownerLaccordingly.

1-4 IndependenceLisLanLimportantLstandardLforLauditors.LIfLanLauditorLisLnotLindep
endentLofLtheLclient,LusersLmayLloseLconfidenceLinLtheLauditor’sLabilityLtoLreportLtruthf
ullyLonLtheLfinancialLstatements,LandLtheLauditor’sLworkLlosesLitsLvalue.LFromLanLage
ncyLperspective,LifLtheLprincipalL(owner)LknowsLthatLtheLauditorLisLnotLindependent,Lth
eLownerLwillLnotLtrustLtheLauditor’sLwork.
Thus,LtheLagentLwillLnotLhireLtheLauditorLbecauseLtheLauditor’sLreportLwillLnotLbeLeffec
tiveLinLreducingLinformationLriskLfromLtheLperspectiveLofLtheLowner.

1-5 AuditingL(broadlyLdefined)LisLaLsystematicLprocessLofLobjectivelyLobtainingLan
dLevaluatingLevidenceLregardingLassertionsLaboutLeconomicLactionsLandLeventsLtoLas
certainLtheLdegreeLofLcorrespondenceLbetweenLthoseLassertionsLandLestablishedLcrite
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, riaLandLcommunicating LtheLresultsLtoLinterestedL users.
AssuranceLisLengagementLinLwhichLaLpractitionerLexpressesLaLconclusionLdesig
nedLtoLenhanceLtheLdegreeLofLconfidenceLofLtheLintendedLusersLotherLthanLtheLrespo
nsibleLpartyLaboutLtheLoutcomeLofLtheLevaluationLorLmeasurementLofLaLsubjectLmatter
LagainstLcriteria.
ExamplesLofLassurance LservicesLareLassuranceL(audit)LofLfinancialLstatements,L
assuranceLofLprospectiveLfinancialLinformation,LassuranceLofLreportingLonLinternalLcontro
l,LassuranceLofLsustainabilityLreporting,LandLassuranceLofLelectronicLcommerce.


1-6 TheLphraseLsystematicLprocessLimpliesLthatLthereLshouldLbeLaLwell-
planned,LlogicalLapproachLforLconductingLanLauditLthatLinvolvesLobjectivelyLobtainingL
andLevaluatingLevidence.

1-7 Materiality:L"Omissions LorLmisstatementsLofLitemsLareLmaterialLifLtheyLcould,Lin
dividuallyLorLcollectively,LinfluenceLtheLeconomicLdecisionsLofLusersLtakenLonLtheLbasis
LofLtheLfinancialLstatements.LMaterialityLdependsLonLtheLsizeLandLnatureLofLtheLomissi
onLorLmisstatementLjudgedLinLtheLsurroundingLcircumstances.LTheLsizeLorLnatureLofLth
eLitem,LorLaLcombinationLofLboth,LcouldLbeLtheL determiningLfactor."L(IASB).
AuditLriskLisLdefinedLasLtheLriskLthatLtheLauditorLexpressesLanLinappropriateLa
uditLopinionLwhenLtheLfinancialLstatementsLareL materiallyL misstatedL(ISAL200).
TheLauditLreportLstatesLthatLtheLauditorLobtainsL“reasonableLassurance”Lwhether
LtheLfinancialLstatementsLareLfreeLfromL“material”Lmisstatement.LTheLtermLreasonableL
assuranceLinformsLtheLreaderLthatLthereLisLsomeLlevelLofLriskLthatLtheLauditLdidLnotL
detectLallLmaterialLmisstatements.LInLaddition,LtheLauditor’sLopinionLcommonlyLusesLthe
LwordingLthatLtheLfinancialLstatementsLpresentLfairly,L“inLallLmaterialLrespects.”LTheseL
phrasesLcommunicateLtoLthirdLpartiesLthatLtheLauditLreportLisLlimitedLtoL materialLinform
ation.

1-8 OnLmostLaudits,LitLisLnotLfeasibleLorLcost-
effectiveLtoLauditLallLtransactions.LForLexample,LinLaLsmallLbusiness,LtheLauditorLmight
LbeLableLtoLexamineLallLtransactionsLthatLoccurredLduringLtheLperiod.LHowever,LitLisL
unlikelyLthatLtheLownerLofLtheLbusinessLcouldLaffordLtoLpayLforLsuchLanLextensiveLau
dit.LForLaLlargeLorganization,LtheLsheerLvolumeLofLtransactionsLpreventsLtheLauditorLfr
omLexaminingLeveryLtransaction.LThus,LthereLisLaLtrade-
offLbetweenLtheLexactnessLorLprecisionLofLtheLauditLandLitsLcost.

1-9 TheLmajorLphasesLofLtheLauditLare:
• ClientL acceptance/continuanceL andL establishingL engagementL terms
• Preplanning
• AssessLrisksLandLestablishLmateriality
• PlanLtheLaudit
• ConsiderLinternalLcontrol
• AuditLbusinessLprocessesLandLrelatedLaccounts
• CompleteLtheLaudit
• EvaluateLresultsLandLissueLauditLreport

1-10 TheLauditor’sLunderstandingLofLtheLentityLandLitsLenvironmentLincludesLkno

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