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
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Xt Principles Of Auditing And Other Assurance Services
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23rd Edition By Ray Whittington Kurt
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ALL Chapters (1 - 21)
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,  Table of Contents Xt Xt




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 Xt




The Role of the Publ Xt Xt Xt Xt




ic Accountant in the
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American Economy Xt




Review Questions
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1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated their previously i
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ssued financial statements as a result of accounting irregularities and fraud. Especially responsible
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were the very visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and co
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nstituted the largest companies in American history to do so. The extent of the accounting irregulari
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ties and fraud being investigated and disclosed brought into question the effectiveness of financial st
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atement audits. In addition, the criminal conviction of Arthur Andersen, LLP, one of the then Big 5
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accounting firms, on charges of destroying documents related to the Enron case brought into questio
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n the ethics standards of the profession.
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1-2 Assurance services are professional services that enhance the quality of information, or its context,
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for decision-
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making. The two types are: (a) those that increase the reliability of information and (b) those that
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involve putting information in a form or context that 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 asse
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rtion, made by management, most frequently is that the financial statements follow generally accepted
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accounting principles.
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1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock ex
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change and by the rules of the Securities and Exchange Commission to provide an audit report with
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the annual financial statements furnished to its stockholders. It also is required to engage the auditor
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s to provide an opinion on its internal control. Apart from legal requirements, however, a large list
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ed corporation recognizes that it must maintain investor confidence in the reliability of its financial s
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tatements and internal control over financial reporting if it is to continue to be able to secure capit
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al from the public. The report by a firm of certified public accountants adds credibility to the financi
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al 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
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an application 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 state
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ments is commonly required in the following situations:
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(1) Application for a bank loan. Xt Xt Xt Xt


(2) Establishing credit for purchase of merchandise, equipment, or other assets.
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(3) Reporting operating results, financial position, and cash flows to absentee owners (stockhol
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ders or partners).X
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(4) Issuance of securities by a corporation.
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(5) Annual financial statements by a corporation with securities listed on a stock exchange or t
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raded over the counter. X
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(6) Sale of an ongoing business.
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(7) Termination of a partnership. Xt Xt Xt




1-6 To add credibility to financial statements is to increase the likelihood that they have been prepared f
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ollowing the appropriate criteria, usually generally accepted accounting principles. As such, an incre
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asein credibility results in financial statements that can be believed and relied upon by third parties.
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1-7 Business risk is the risk that the investment will be impaired because a company invested in is un
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able to meet its financial obligations due to economic conditions or poor management decisions. Inf
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ormation risk is the risk that the information used to assess business risk is not accurate. Auditors
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can directly reduce information risk, but have only limited 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
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of fraud. Audit work centered on the balance sheet, because the income statement was regarded as h
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ighly confidential and not for public disclosure. Today, the principal objective of auditing is to for
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m an opinion on the fairness of financial statements and their conformity with generally accepted acc
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ounting principles. But the professional standards also require that an audit be designed to provide r
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easonable assurance of detecting material misstatements, due to errors or fraud. Particular emphasis
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is placed on the income statement which is of great importance to investors. Auditing today also h
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as the objectives of meeting the requirements of the Securities and Exchange Commission (SEC) and
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the Public Company Accounting Oversight Board for public companies.
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1-9 The statement is incorrect. The increasing integrated databases of today, along with available
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audit procedures make audited entire populations a possibility in many situations.
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1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of an
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organization. It involves more subjective judgments than a compliance audit or an audit of fina
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ncial statements because the criteria of effectiveness and efficiency of departmental performance
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are not as clearly established as are many laws and regulations or generally accepted accounting p
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rinciples.
The report prepared after completion of an operational audit is usually directed to managem
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entof the organization in which the audit work was done.
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1-11 A compliance audit is an audit to determine whether financial reports or other assertions are in co
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mpliance with established criteria. The necessary ingredients are verifiable data and the existence of
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standards established by an authoritative body. An operational audit, on the other hand, is a revie
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w of a department or other unit of a business or governmental organization to measure the effective
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ness and efficiency of operations. Internal auditors often perform operational audits as do auditors
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employed by the Government Accountability Office (GAO) of the federal government.
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1-12 Internal auditors must be independent of the department heads and other line executives whose work
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they review. However, internal auditors are not independent in the same sense as a public accounting
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