Solution Manual for Principles of Auditing and Other Assurance Services, 23rd Edition 2024, by Ray Whittington, Kurt Pany, All Chapters 1 - 21, Complete Newest Version

SOLUTION MANUAL FOR
z z




Principles Of Auditing And Other Assurance Services
z z z z z z z




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

, • TableofContents
Chapter 1: The Role of the Public Accountant inthe AmericanEconomy
e e e e e e e e e




Chapter 2: Professional Standards
e e e e




Chapter 3: Professional Ethics
e e e




Chapter 4: Legal Liability of CPAs
e e e e e e




Chapter 5: Audit Evidence and Documentation
e e e e e




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




7: Internal Control
e e e




Chapter 8: Consideration of Internal Control inan InformationTechnology Environment
e e e e e e e e




Chapter 9: Audit Sampling
e e e e




Chapter 10: Cashand Financial Investments
e e e e




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




12: Inventories and Cost of Goods Sold
e e e e e e e




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




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




Chapter 15: Debt and Equity Capital
e e e e e




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




17: Auditors’ Reports
e e e




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




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




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




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

,CHAPTER 1 z




TheRoleofthePublic e




e Accountant in the e e




AmericanEconomy


Review Questions
e




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


financial statements as a result of accounting irregularities and fraud. Especially responsible werethe very
e e e e e e e e e e e e e e


visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and constituted the largest
e e e e e e e e e e e e e F e


companies in American history to do so. The extent of the accounting irregularities and fraud being investi
e e e e e e e e e F e e e e e e e


gated and disclosed brought into question the effectiveness of financial statement audits. In addition, the cr
e e e e e e e e e e e e e e e e


iminal conviction of Arthur Andersen, LLP, one of the then Big 5 accounting firms, on charges of destroyi
e e e e e e e e e e e e e e e e e e


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




1-2 Assurance services are professional services that enhance the quality of information, or its context, for d
e e e e e F e e e e e e e e e


ecision-
e


making. The two types are: (a) those that increase the reliability of information and (b) those that involv e
e e e e e e e e e e e e e e e e e e


putting information in a form or context that facilitates decision-making.
e e e e e e e e e e




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


ade by management, most frequently is that the financial statements follow generally accepted accounting
e e e e e e e e e e e e e e


principles.
e




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


and by the rules of the Securities and Exchange Commission to provide an audit report with theannual fina
e e e e e e e e e e e e e e e e e e


ncial statements furnished to its stockholders. It also is required to engage the auditors to provide an opinio
e e e e e e e e e e e e e e e e e e


n on its internal control. Apart from legal requirements, however, a large listed corporation recognizes tha
e e e e e e e e e e e e e e e e


t it must maintain investor confidence in the reliability of its financial statements and internal control over f
e e e e e e e e e e e e e e e e e e


inancial reporting if it is to continue to be able to secure capital from the public. The report by a firm of cer
e e e e e e e e e e e e e e e e e e e e e e e


tified public accountants adds credibility to the financial statements prepared by the corporation. When a s
e e e e e e e e e e e e e e e e


mall family-
e e


owned enterprise elects to have an audit, the purpose usually is to use the auditors' report to support an appli
e e e e e e e e e e e e e e e e e e e


cation for a bank loan.
e e e e e

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


commonly required in the following situations:
e e e e e e




(1) Application for a bank loan. e e e F


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


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


r partners).
e e


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


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


ver the counter.
e e e


(6) Sale of an ongoing business. e e e F


(7) Termination of a partnership. e e e




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


eg the appropriate criteria, usually generally accepted accounting principles. As such, an increasein credibil
e e e e e e e e e e e e e


eity results in financial statements that can be believed and relied upon by third parties.
e e e e e e e e e e e e e e




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


eeet its financial obligations due to economic conditions or poor management decisions. Information risk i
e e e e e e e e e e e e e e


es the risk that the information used to assess business risk is not accurate. Auditors can directly reduce i
e e e F e e e e e e F e e e e e e e


enformation risk, but have only limited effect on business risk. e e e e e e e e e




1-8 Atthe beginning of the century, the principal objective of auditing was the prevention and detection of frau
e e e e e e e e e e e e e e e e


d. Audit work centered on the balance sheet, because the income statement was regarded as highly confide
e e e e e e e e e e e e e e e e


ential and not for public disclosure. Today, the principal objective of auditing is to form an opinion on
e e e e e e e e e e e e e e e e e


the f airness of financial statements and their conformity with generally accepted accounting principles.
e e e e e e e e e e e e e


eBut the professional standards also require that an audit be designed to provide reasonable assurance of
e e e e e e e e e e e e e e e


edetecting material misstatements, due to errors or fraud. Particular emphasis is placed on the income
e e e e e e e e e e e e e e


estatement whic h is of great importance to investors. Auditing today also has the objectives ofmeeting the
e e e e e e e e e e e e e e e e


erequirements of the Securities and Exchange Commission (SEC) and the Public Company Accounting
e e e e e e e e e e e e


eOversight Board fo r public companies. F e e e e




1-9 The statement is incorrect. The increasing integrated databases of today, along with available auditp
F e e e e F e e e e e e e


erocedures make audited entire populations a possibility in many situations.
e e e e e e e e e




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


zation. It involves more subjective judgments than a compliance audit or an audit of financial statemen
e e e e e e e e e e e e e e e e


ts because the criteria of effectiveness and efficiency of departmental performance are not asclearly est
e e e e e e e e e e e e e F e e


ablished as are many laws and regulations or generally accepted accounting principles.
e e e e e e e e e e e e


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


the organization in which the audit work was done.
e e e e e e e e e




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


e with established criteria. The necessary ingredients are verifiable data and the existence of standards est
e e e e e e e e e e e e e e e e


ablished by an authoritative body. An operational audit, on the other hand, is a review of adepartment or
e e e e e e e e e e e e e e e e e e


other unit of a business or governmental organization to measure the effectiveness and efficiency of opera
e e e e e e e e e e e e e e e e


tions. Internal auditors often perform operational audits as do auditors employed by the Government Ac
e e e e e e e e e e e e e e e


countability Office (GAO) of the federal government.
e e e e e e e




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


eview. However, internal auditors are not independent in the same sense as a public accounting firm.
e e e e e e e e e e e e e e e