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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pc 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 pc pc




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 pc




The Role of the Publ pc pc pc pc




ic Accountant in the
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American Economy pc




Review Questions
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1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated their previously is
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sued financial statements as a result of accounting irregularities and fraud. Especially responsible we
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rethe very visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and consti
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tuted the largest companies in American history to do so. The extent of the accounting irregularities
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and fraud being investigated and disclosed brought into question the effectiveness of financial statem
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ent audits. In addition, the criminal conviction of Arthur Andersen, LLP, one of the then Big 5 accou
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nting firms, on charges of destroying documents related to the Enron case brought into question the
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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-pc


making. The two types are: (a) those that increase the reliability of information and (b) those that i
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nvolve 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 asser
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tion,made by management, most frequently is that the financial statements follow generally accepted a
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ccounting principles. pc




1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock exc
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hange and by the rules of the Securities and Exchange Commission to provide an audit report with t
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heannual financial statements furnished to its stockholders. It also is required to engage the auditors t
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o provide an opinion on its internal control. Apart from legal requirements, however, a large listed
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corporation recognizes that it must maintain investor confidence in the reliability of its financial state
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ments and internal control over financial reporting if it is to continue to be able to secure capital fr
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om the public. The report by a firm of certified public accountants adds credibility to the financial sta
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tements 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 statem
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entsis commonly required in the following situations:
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(1) Application for a bank loan. pc pc pc pc


(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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dersor partners). pc pc


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


(5) Annual financial statements by a corporation with securities listed on a stock exchange or tr
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adedover the counter. pc pc pc


(6) Sale of an ongoing business.
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(7) Termination of a partnership. pc pc pc




1-6 To add credibility to financial statements is to increase the likelihood that they have been prepared fo
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llowing the appropriate criteria, usually generally accepted accounting principles. As such, an increas
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ein 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 una
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ble tomeet its financial obligations due to economic conditions or poor management decisions. Infor
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mation risk is the risk that the information used to assess business risk is not accurate. Auditors ca
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n 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 o
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f fraud. Audit work centered on the balance sheet, because the income statement was regarded as hig
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hly confidential and not for public disclosure. Today, the principal objective of auditing is to form
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an opinion on the fairness of financial statements and their conformity with generally accepted accoun
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ting principles. But the professional standards also require that an audit be designed to provide reaso
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nable assurance of detecting material misstatements, due to errors or fraud. Particular emphasis is
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placed on the income statement which is of great importance to investors. Auditing today also has th
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e objectives ofmeeting the requirements of the Securities and Exchange Commission (SEC) and the
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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 a
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uditprocedures 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 financ
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ial statements because the criteria of effectiveness and efficiency of departmental performance are
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not asclearly established as are many laws and regulations or generally accepted accounting princ
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iples.
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 com
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pliance with established criteria. The necessary ingredients are verifiable data and the existence of st
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andards established by an authoritative body. An operational audit, on the other hand, is a review o
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f adepartment or other unit of a business or governmental organization to measure the effectiveness
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cand efficiency of operations. Internal auditors often perform operational audits as do auditors empl
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oyed 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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theyreview. However, internal auditors are not independent in the same sense as a public accounting f
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