SOLUTION MANUAL
All Chapters Included
, Principles Of Auditing And Other Assurance Services 23rd Edition By Ray
Whittington Kurt ALL Chapters (1 - 21)
Table of Contents
Chapter 1: The Role of the Public Accountant in the AmericanEconomy
Chapter 2: Professional Standards
Chapter 3: Professional Ethics
Chapter 4: Legal Liability of CPAs
Chapter 5: Audit Evidence and Documentation
Chapter 6: Audit Planning, Understanding the Client, AssessingRisks, and Responding
Chapter 7: Internal Control
Chapter 8: Consideration of Internal Control in an InformationTechnology Environment
Chapter 9: Audit Sampling
Chapter 10: Cash and Financial Investments
Chapter 11: Accounts Receivable, Notes Receivable, andRevenue
Chapter 12: Inventories and Cost of Goods Sold
Chapter 13: Property, Plant, and Equipment: Depreciation andDepletion
Chapter 14: Accounts Payable and Other Liabilities
Chapter 15: Debt and Equity Capital
Chapter 16: Auditing Operations and Completing the Audit
Chapter 17: Auditors’ Reports
Chapter 18: Integrated Audits of Public Companies
Chapter 19: Additional Assurance Services: Historical FinancialInformation
Chapter 20: Additional Assurance Services: Other Information
,Chapter 21: Internal, Operational, and Compliance Auditing
CHAPTER 1
The Role of the Public Accountant in the American Economy
Review Questions
1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated
their previously issued financial statements as a result of accounting irregularities and
fraud. Especially responsible werethe very visible Enron and WorldCom fraud cases. Both
companies filed for bankruptcy and constituted the largest companies in American
history to do so. The extent of the accounting irregularities and fraud being investigated
and disclosed brought into question the effectiveness of financial statement audits. In
addition, the criminal conviction of Arthur Andersen, LLP, one of the then Big 5
accounting firms, on charges of destroying documents related to the Enron case brought
into question the ethics standards of the profession.
1-2 Assurance services are professional services that enhance the quality of information, or
its context, for decision-making. The two types are: (a) those that increase the
reliability of information and (b) those that involve putting information in a form or
context that facilitates decision-making.
1-3 A financial statement audit is, by far, the most common type of attest engagement. The
overall assertion,made by management, most frequently is that the financial statements
follow generally accepted accounting principles.
1-4 A large corporation with securities listed on a stock exchange is required by the rules of
the stock exchange and by the rules of the Securities and Exchange Commission to provide
an audit report with theannual financial statements furnished to its stockholders. It also
is required to engage the auditors to provide an opinion on its internal control. Apart
from legal requirements, however, a large listed corporation recognizes that it must
maintain investor confidence in the reliability of its financial statements and internal
control over financial reporting if it is to continue to be able to secure capital from the
public. The report by a firm of certified public accountants adds credibility to the financial
statements prepared by the corporation. When a small family-owned enterprise elects to
have an audit, the purpose usually is to use the auditors' report to support an application
for a bank loan.
, 1-5 A report by an independent public accountant concerning the fairness of a company's
financial statementsis commonly required in the following situations:
(1) Application for a bank loan.
(2) Establishing credit for purchase of merchandise, equipment, or other assets.
(3) Reporting operating results, financial position, and cash flows to absentee
owners (stockholdersor partners).
(4) Issuance of securities by a corporation.
(5) Annual financial statements by a corporation with securities listed on a stock
exchange or tradedover the counter.
(6) Sale of an ongoing business.
(7) Termination of a partnership.
1-6 To add credibility to financial statements is to increase the likelihood that they have been
prepared following the appropriate criteria, usually generally accepted accounting
principles. As such, an increasein credibility results in financial statements that can be
believed and relied upon by third parties.
1-7 Business risk is the risk that the investment will be impaired because a company
invested in is unable tomeet its financial obligations due to economic conditions or poor
management decisions. Information risk is the risk that the information used to assess
business risk is not accurate. Auditors can directly reduce information risk, but have
only limited effect on business risk.
of audit
1-8 At the beginning of the century, the principal objectiveing was the prevention and
detection of fraud. Audit work centered on the balance sheet, because the income
statement was regarded as highly confidential and not for public disclosure. Today, the
principal objective of auditing is to form an opinion on the fairness of financial
statements and their conformity with generally accepted accounting principles. But the
professional standards also require that an audit be designed to provide reasonable
assurance of detecting material misstatements, due to errors or fraud. Particular
emphasis is placed on the income statement which is of great importance to investors.
Auditing today also has the objectives ofmeeting the requirements of the Securities and
Exchange Commission (SEC) and the Public Company Accounting Oversight Board for
public companies.
1-9 The statement is incorrect. The increasing integrated databases of today, along with
available auditprocedures make audited entire populations a possibility in many
situations.
1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific
unit of an organization. It involves more subjective judgments than a compliance audit
or an audit of financial statements because the criteria of effectiveness and efficiency
of departmental performance are not asclearly established as are many laws and
regulations or generally accepted accounting principles.
The report prepared after completion of an operational audit is usually directed to
managementof the organization in which the audit work was done.
All Chapters Included
, Principles Of Auditing And Other Assurance Services 23rd Edition By Ray
Whittington Kurt ALL Chapters (1 - 21)
Table of Contents
Chapter 1: The Role of the Public Accountant in the AmericanEconomy
Chapter 2: Professional Standards
Chapter 3: Professional Ethics
Chapter 4: Legal Liability of CPAs
Chapter 5: Audit Evidence and Documentation
Chapter 6: Audit Planning, Understanding the Client, AssessingRisks, and Responding
Chapter 7: Internal Control
Chapter 8: Consideration of Internal Control in an InformationTechnology Environment
Chapter 9: Audit Sampling
Chapter 10: Cash and Financial Investments
Chapter 11: Accounts Receivable, Notes Receivable, andRevenue
Chapter 12: Inventories and Cost of Goods Sold
Chapter 13: Property, Plant, and Equipment: Depreciation andDepletion
Chapter 14: Accounts Payable and Other Liabilities
Chapter 15: Debt and Equity Capital
Chapter 16: Auditing Operations and Completing the Audit
Chapter 17: Auditors’ Reports
Chapter 18: Integrated Audits of Public Companies
Chapter 19: Additional Assurance Services: Historical FinancialInformation
Chapter 20: Additional Assurance Services: Other Information
,Chapter 21: Internal, Operational, and Compliance Auditing
CHAPTER 1
The Role of the Public Accountant in the American Economy
Review Questions
1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated
their previously issued financial statements as a result of accounting irregularities and
fraud. Especially responsible werethe very visible Enron and WorldCom fraud cases. Both
companies filed for bankruptcy and constituted the largest companies in American
history to do so. The extent of the accounting irregularities and fraud being investigated
and disclosed brought into question the effectiveness of financial statement audits. In
addition, the criminal conviction of Arthur Andersen, LLP, one of the then Big 5
accounting firms, on charges of destroying documents related to the Enron case brought
into question the ethics standards of the profession.
1-2 Assurance services are professional services that enhance the quality of information, or
its context, for decision-making. The two types are: (a) those that increase the
reliability of information and (b) those that involve putting information in a form or
context that facilitates decision-making.
1-3 A financial statement audit is, by far, the most common type of attest engagement. The
overall assertion,made by management, most frequently is that the financial statements
follow generally accepted accounting principles.
1-4 A large corporation with securities listed on a stock exchange is required by the rules of
the stock exchange and by the rules of the Securities and Exchange Commission to provide
an audit report with theannual financial statements furnished to its stockholders. It also
is required to engage the auditors to provide an opinion on its internal control. Apart
from legal requirements, however, a large listed corporation recognizes that it must
maintain investor confidence in the reliability of its financial statements and internal
control over financial reporting if it is to continue to be able to secure capital from the
public. The report by a firm of certified public accountants adds credibility to the financial
statements prepared by the corporation. When a small family-owned enterprise elects to
have an audit, the purpose usually is to use the auditors' report to support an application
for a bank loan.
, 1-5 A report by an independent public accountant concerning the fairness of a company's
financial statementsis commonly required in the following situations:
(1) Application for a bank loan.
(2) Establishing credit for purchase of merchandise, equipment, or other assets.
(3) Reporting operating results, financial position, and cash flows to absentee
owners (stockholdersor partners).
(4) Issuance of securities by a corporation.
(5) Annual financial statements by a corporation with securities listed on a stock
exchange or tradedover the counter.
(6) Sale of an ongoing business.
(7) Termination of a partnership.
1-6 To add credibility to financial statements is to increase the likelihood that they have been
prepared following the appropriate criteria, usually generally accepted accounting
principles. As such, an increasein credibility results in financial statements that can be
believed and relied upon by third parties.
1-7 Business risk is the risk that the investment will be impaired because a company
invested in is unable tomeet its financial obligations due to economic conditions or poor
management decisions. Information risk is the risk that the information used to assess
business risk is not accurate. Auditors can directly reduce information risk, but have
only limited effect on business risk.
of audit
1-8 At the beginning of the century, the principal objectiveing was the prevention and
detection of fraud. Audit work centered on the balance sheet, because the income
statement was regarded as highly confidential and not for public disclosure. Today, the
principal objective of auditing is to form an opinion on the fairness of financial
statements and their conformity with generally accepted accounting principles. But the
professional standards also require that an audit be designed to provide reasonable
assurance of detecting material misstatements, due to errors or fraud. Particular
emphasis is placed on the income statement which is of great importance to investors.
Auditing today also has the objectives ofmeeting the requirements of the Securities and
Exchange Commission (SEC) and the Public Company Accounting Oversight Board for
public companies.
1-9 The statement is incorrect. The increasing integrated databases of today, along with
available auditprocedures make audited entire populations a possibility in many
situations.
1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific
unit of an organization. It involves more subjective judgments than a compliance audit
or an audit of financial statements because the criteria of effectiveness and efficiency
of departmental performance are not asclearly established as are many laws and
regulations or generally accepted accounting principles.
The report prepared after completion of an operational audit is usually directed to
managementof the organization in which the audit work was done.
