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
Principles Of Auditing And Other Assurance Services

23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)

,  Table of Contents UYT UYT




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 U Y T




The Role of the Publi UY T UY T U Y T UY T




c Accountant in the U Y T U Y T U Y T




American Economy U Y T




ReviewQuestions
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1-1 The ―crisis of credibility‖ largelyarose from the number of companies that restated their previously issued fina
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ncial statements as a result of accounting irregularities and fraud. Especially responsible werethe very visibl
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e Enron and WorldCom fraud cases. Both companies filed for bankruptcy and constituted the largest compa
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nies in American history to do so. The extent of the accounting irregularities and fraud being investigated an
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d disclosed brought into question the effectiveness of financial statement audits. In addition, the criminal con
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viction of Arthur Andersen, LLP, one of the then Big 5 accounting firms, on charges of destroying documents
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related to the Enron case brought into question 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, for decis
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ion-
making. The two types are: (a) those that increase the reliability of information and (b) those that involveput
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tinginformationinaformorcontext 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 assertion,mad
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e by management, most frequently is that the financial statements follow generally accepted accounting princi
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ples.

1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock exchange and
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by the rules of the Securities and Exchange Commission to provide an audit report with theannual financial st
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atements furnished to its stockholders. It also is required to engage the auditors to provide an opinion on its in
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ternal control. Apart from legal requirements, however, a large listed corporation recognizes that it must mai
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ntain investor confidence in the reliability of its financial statements and internal control over financial report
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ing if it is to continue to be able to secure capital from the public. The report by a firm of certified public acco
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untants adds credibility to the financial 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 an applicat
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ion for a bank loan. U Y T UYT UYT UYT

, 1-5 A report by an independent public accountant concerning the fairness of a company's financial statementsis c
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ommonlyrequired in thefollowing situations: UYT UYT UYT UYT UYT




(1) Application for a bank loan. UYT UY T U Y T UYT




(2) Establishing credit for purchase of merchandise, equipment, or other assets. UYT U Y T U Y T UYT U Y T UYT UYT U Y T U Y T




(3) Reporting operating results, financial position, and cash flows to absentee owners (stockholdersor UYT UYT U Y T UYT U Y T UYT UY T U Y T UYT UYT U Y T UYT UY




partners).
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(4) Issuance of securities by a corporation. UYT U Y T U Y T UYT U Y T




(5) Annual financial statements by a corporation with securities listed on a stock exchange or tradedov UYT UYT U Y T UYT UY T UYT UYT U Y T UYT UYT U Y T UYT UY T UY T UYT




er the counter. UYT UYT




(6) Sale of an ongoing business. UYT U Y T UY T UYT




(7) Termination of a partnership. UYT U Y T U Y T




1-6 To add credibility to financial statements is to increase the likelihood that they have been prepared following t
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he appropriate criteria, usually generally accepted accounting principles. As such, an increasein credibility re
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sults 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 unable tomee U Y T UYT U Y T UY T UY T U Y T UYT U Y T UY T UY T UYT UYT U Y T UYT UYT UYT U Y T UYT UYT




t its financial obligations due to economic conditions or poor management decisions. Information risk is the r
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isk that the information used to assess business risk is not accurate. Auditors can directly reduce information
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risk, but have onlylimited effect on business risk. UYT UYT UYT UYT UYT UYT UYT UYT




1-8 At the beginning of the century, the principal objective of auditing was the prevention and detection of fraud.
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Audit work centered on the balance sheet, because the income statement was regarded as highly confidential a
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nd not for public disclosure. Today, the principal objective of auditing is to form an opinion on the fairness
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of financial statements and their conformity with generally accepted accounting principles. But the professio
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nal standards also require that an audit be designed to provide reasonable assurance of detecting material mis
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statements, due to errors or fraud. Particular emphasis is placed on the income statement which is of great U Y T UYT UYT U Y T U Y T U Y T U Y T U Y T U Y T UYT UYT UYT UYT U Y T UYT U Y T UYT U Y T




importance to investors. Auditing today also has the objectives ofmeeting the requirements of the Securities UYT UYT U Y T UYT UYT UYT U Y T UYT U Y T UYT UYT UYT U Y T UYT UYT U Y T




and Exchange Commission (SEC) and the Public Company Accounting Oversight Board for publiccompan
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ies.

1-9 The statement is incorrect. The increasing integrated databases of today, along with available auditpr
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ocedures makeauditedentirepopulations a possibilityinmanysituations. UYT UYT UYT UYT UYT UYT UYT UYT UYT




1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of an organizat
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ion. It involves more subjective judgments than a compliance audit or an audit of financial statements bec
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ause the criteria of effectiveness and efficiency of departmental performance are not asclearly establishe
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d as are many laws and regulations or generally accepted accounting principles.
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The report prepared after completion of an operational audit is usually directed to managementof th UYT U Y T UYT U Y T UYT U Y T UYT UYT U Y T U Y T UYT UYT UYT UYT UYT




eorganization in which theaudit 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 compliance w
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ith established criteria. The necessary ingredients are verifiable data and the existence of standards establish
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ed by an authoritative body. An operational audit, on the other hand, is a review of adepartment or other uni
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t of a business or governmental organization to measure the effectiveness and efficiency of operations. Inter
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nal auditors often perform operational audits as do auditors employed by theGovernment Accountability
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Office(GAO) of thefederalgovernment. UYT UYT UYT UYT UYT




1-12 Internal auditors must be independent of the department heads and other line executives whose work theyrevi
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ew. However, internal auditors are not independent in the same sense as a public accounting firm.
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