CHAPTER 1
Solution Manual For Auditing & Assurance Services A
Systematic Approach 12th Edition By Messier All
Chapter 1-21 Latest Edition 2026
1
, CHAPTER 1
Table Of Contents
Part 1: Introduction To Assurance And Financial Statement Auditing
Chapter 1: An Introduction To Assurance And Financial Statement Auditing
Chapter 2: The Financial Statement Auditing Environment
Part 2: Audit Planning And Basic Auditing Concepts
Chapter 3: Audit Planning, Types Of Audit Tests, And Materiality
Chapter 4: Risk Assessment
Chapter 5: Evidence And Documentation
Part 3: Understanding And Auditing Internal Control
Chapter 6: Internal Control In A Financial Statement Audit
Chapter 7: Auditing Internal Control Over Financial Reporting
Part 4: Statistical And Nonstatistical Sampling Tools For Auditing
Chapter 8: Audit Sampling: An Overview And Application To Tests Of Controls
Chapter 9: Audit Sampling: An Application To Substantive Tests Of Account Balances
Part 5: Auditing Business Processes
Chapter 10: Auditing The Revenue Process
Chapter 11: Auditing The Purchasing Process
Chapter 12: Auditing The Human Resource Management Process
Chapter 13: Auditing The Inventory Management Process
Chapter 14: Auditing The Financing/Investing Process: Prepaid Expenses, Intangible Assets, And Property,
Plant, And Equipment
Chapter 15: Auditing The Financing/Investing Process: Long-Term Liabilities, Stockholders’ Equity, And
Income Statement Accounts
Chapter 16: Auditing The Financing/Investing Process: Cash And Investments
Part 6: Completing The Audit And Reporting Responsibilities
Chapter 17: Completing The Audit Engagement
Chapter 18: Reports On Audited Financial Statements
Part 7: Professional Responsibilities
Chapter 19: Professional Conduct, Independence, And Quality Management
Chapter 20: Legal Liability
Part 8: Assurance, Attestation, And Internal Auditing Services
Chapter 21: Assurance, Attestation, And Internal Auditing Services
2
, CHAPTER 1
chapter 1
an introduction to assurance and financial statement auditing
answers to review questions
1-1 the study of auditing is more conceptual in nature as compared to other accounting
courses. rather than focusing on learning the rules, techniques, and computations
required to prepare financial statements, auditing emphasizes learning a
framework of analytical and logical skills. this framework enables auditors to
evaluate the relevance and reliability of the systems and processes responsible for
financial information as well as the information itself. to be successful, students
must learn the framework and then learn to use logic and common sense in
applying auditing concepts to various circumstances and situations. understanding
auditing can improve the decision-making ability of consultants, business managers,
and accountants by providing a framework for evaluating the usefulness and
reliability of information—an important task in many different business contexts.
1-2 there is a demand for auditing in a free-market economy because the agency
relationship between an absentee owner and a manager produces a natural conflict
of interest due to the information asymmetry that exists between these two
parties. as a result, the agent agrees to be monitored as part of his/her employment
contract. auditing appears to be a cost-effective form of monitoring. the empirical
evidence suggests that auditing was demanded prior to government regulation. in
1926, before it was required by law, independent auditors audited 82 percent of
the companies on the new york stock exchange. additionally, many private
companies and municipalities not subject to government regulations, such as the
securities act of 1933 and securities exchange act of 1934, also purchase various
forms of auditing and assurance services. many private companies seek out
financial statement audits in order to secure financing for their operations.
companies preparing to go public also benefit from having an audit.
1-3 the agency relationship between an owner and manager produces a natural conflict
of interest because of differences in the two parties’ goals and because of the
information asymmetry that exists between them. that is, the manager likely has
different goals than the owner, and generally has more information about the "true"
financial position and results of operations of the entity than the absentee owner
does. if both parties seek to maximize their own self-interest, the manager may not
act in the best interest of the owner and may manipulate the information provided
to the owner accordingly.
3
, CHAPTER 1
1-4 independence is a bedrock principle for auditors. if an auditor is not independent of
the client, users may lose confidence in the auditor’s ability to report objectively
and truthfully on the financial statements, and the auditor’s work loses its value.
from an agency perspective, if the principal (owner) knows that the auditor is not
independent, the owner will not trust the auditor’s work. thus, the agent will not
hire the auditor because the auditor’s report will not be effective in reducing
information risk from the perspective of the owner. auditor independence is also a
regulatory requirement.
1-5 auditing (broadly defined) is a systematic process of (1) objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to
ascertain the degree of correspondence between those assertions and established
criteria and (2) communicating the results to interested users.
attest services occur when a practitioner issues a report on subject matter, or an
assertion about subject matter, that is the responsibility of another party.
assurance services are independent professional services that improve the quality
of information, or its context, for decision makers.
1-6 auditing is a specific form of ―attest service,‖ which in turn is a specific category of
―assurance service.‖ in other words, the phrase ―assurance services‖ constitutes
the broadest category of professional services provided by cpas that serve to
improve the quality or context of information for decision making for other parties.
attest services constitute a more specific category of assurance that cpas can
provide. these services are intended to reduce information risk to parties relying on
information provided by a party that is creating, or making assertions about,
subject matter of interest. cpas can provide attest services relating to a wide variety
of subject matter (or assertions about that subject matter) to reduce the
information risk to third parties. one such subject matter is a set of financial
statements. when a cpa provides a very in-depth, detailed attest service that follows
relevant standards to constitute a complete examination of a set of financial
statements and related assertions, this is called a financial statement ―audit.‖
1-7 audit risk is defined as the risk that the auditor may unknowingly fail to
appropriately modify his or her opinion on financial statements that are materially
misstated (as 1101). materiality is defined as "the magnitude of an omission or
misstatement of accounting information that, in the light of surrounding
circumstances, makes it probable that the judgment of a reasonable person relying
on the information would have been changed or influenced by the omission or
misstatement" (fasb statement of financial accounting concepts no. 8, chapter 3:
qualitative characteristics of useful accounting information, which is pending
revision at the time of the writing of this book per the board’s november 2017
decision to revert to a definition of materiality similar to the one found in
superseded concept no. 2).
the concept of materiality is reflected in the wording of the auditor's standard
audit report through the phrase "the financial statements present fairly in all
material respects." this is the manner in which the auditor communicates the notion
of materiality to the users of the auditor's report. the auditor's standard report
4
Solution Manual For Auditing & Assurance Services A
Systematic Approach 12th Edition By Messier All
Chapter 1-21 Latest Edition 2026
1
, CHAPTER 1
Table Of Contents
Part 1: Introduction To Assurance And Financial Statement Auditing
Chapter 1: An Introduction To Assurance And Financial Statement Auditing
Chapter 2: The Financial Statement Auditing Environment
Part 2: Audit Planning And Basic Auditing Concepts
Chapter 3: Audit Planning, Types Of Audit Tests, And Materiality
Chapter 4: Risk Assessment
Chapter 5: Evidence And Documentation
Part 3: Understanding And Auditing Internal Control
Chapter 6: Internal Control In A Financial Statement Audit
Chapter 7: Auditing Internal Control Over Financial Reporting
Part 4: Statistical And Nonstatistical Sampling Tools For Auditing
Chapter 8: Audit Sampling: An Overview And Application To Tests Of Controls
Chapter 9: Audit Sampling: An Application To Substantive Tests Of Account Balances
Part 5: Auditing Business Processes
Chapter 10: Auditing The Revenue Process
Chapter 11: Auditing The Purchasing Process
Chapter 12: Auditing The Human Resource Management Process
Chapter 13: Auditing The Inventory Management Process
Chapter 14: Auditing The Financing/Investing Process: Prepaid Expenses, Intangible Assets, And Property,
Plant, And Equipment
Chapter 15: Auditing The Financing/Investing Process: Long-Term Liabilities, Stockholders’ Equity, And
Income Statement Accounts
Chapter 16: Auditing The Financing/Investing Process: Cash And Investments
Part 6: Completing The Audit And Reporting Responsibilities
Chapter 17: Completing The Audit Engagement
Chapter 18: Reports On Audited Financial Statements
Part 7: Professional Responsibilities
Chapter 19: Professional Conduct, Independence, And Quality Management
Chapter 20: Legal Liability
Part 8: Assurance, Attestation, And Internal Auditing Services
Chapter 21: Assurance, Attestation, And Internal Auditing Services
2
, CHAPTER 1
chapter 1
an introduction to assurance and financial statement auditing
answers to review questions
1-1 the study of auditing is more conceptual in nature as compared to other accounting
courses. rather than focusing on learning the rules, techniques, and computations
required to prepare financial statements, auditing emphasizes learning a
framework of analytical and logical skills. this framework enables auditors to
evaluate the relevance and reliability of the systems and processes responsible for
financial information as well as the information itself. to be successful, students
must learn the framework and then learn to use logic and common sense in
applying auditing concepts to various circumstances and situations. understanding
auditing can improve the decision-making ability of consultants, business managers,
and accountants by providing a framework for evaluating the usefulness and
reliability of information—an important task in many different business contexts.
1-2 there is a demand for auditing in a free-market economy because the agency
relationship between an absentee owner and a manager produces a natural conflict
of interest due to the information asymmetry that exists between these two
parties. as a result, the agent agrees to be monitored as part of his/her employment
contract. auditing appears to be a cost-effective form of monitoring. the empirical
evidence suggests that auditing was demanded prior to government regulation. in
1926, before it was required by law, independent auditors audited 82 percent of
the companies on the new york stock exchange. additionally, many private
companies and municipalities not subject to government regulations, such as the
securities act of 1933 and securities exchange act of 1934, also purchase various
forms of auditing and assurance services. many private companies seek out
financial statement audits in order to secure financing for their operations.
companies preparing to go public also benefit from having an audit.
1-3 the agency relationship between an owner and manager produces a natural conflict
of interest because of differences in the two parties’ goals and because of the
information asymmetry that exists between them. that is, the manager likely has
different goals than the owner, and generally has more information about the "true"
financial position and results of operations of the entity than the absentee owner
does. if both parties seek to maximize their own self-interest, the manager may not
act in the best interest of the owner and may manipulate the information provided
to the owner accordingly.
3
, CHAPTER 1
1-4 independence is a bedrock principle for auditors. if an auditor is not independent of
the client, users may lose confidence in the auditor’s ability to report objectively
and truthfully on the financial statements, and the auditor’s work loses its value.
from an agency perspective, if the principal (owner) knows that the auditor is not
independent, the owner will not trust the auditor’s work. thus, the agent will not
hire the auditor because the auditor’s report will not be effective in reducing
information risk from the perspective of the owner. auditor independence is also a
regulatory requirement.
1-5 auditing (broadly defined) is a systematic process of (1) objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to
ascertain the degree of correspondence between those assertions and established
criteria and (2) communicating the results to interested users.
attest services occur when a practitioner issues a report on subject matter, or an
assertion about subject matter, that is the responsibility of another party.
assurance services are independent professional services that improve the quality
of information, or its context, for decision makers.
1-6 auditing is a specific form of ―attest service,‖ which in turn is a specific category of
―assurance service.‖ in other words, the phrase ―assurance services‖ constitutes
the broadest category of professional services provided by cpas that serve to
improve the quality or context of information for decision making for other parties.
attest services constitute a more specific category of assurance that cpas can
provide. these services are intended to reduce information risk to parties relying on
information provided by a party that is creating, or making assertions about,
subject matter of interest. cpas can provide attest services relating to a wide variety
of subject matter (or assertions about that subject matter) to reduce the
information risk to third parties. one such subject matter is a set of financial
statements. when a cpa provides a very in-depth, detailed attest service that follows
relevant standards to constitute a complete examination of a set of financial
statements and related assertions, this is called a financial statement ―audit.‖
1-7 audit risk is defined as the risk that the auditor may unknowingly fail to
appropriately modify his or her opinion on financial statements that are materially
misstated (as 1101). materiality is defined as "the magnitude of an omission or
misstatement of accounting information that, in the light of surrounding
circumstances, makes it probable that the judgment of a reasonable person relying
on the information would have been changed or influenced by the omission or
misstatement" (fasb statement of financial accounting concepts no. 8, chapter 3:
qualitative characteristics of useful accounting information, which is pending
revision at the time of the writing of this book per the board’s november 2017
decision to revert to a definition of materiality similar to the one found in
superseded concept no. 2).
the concept of materiality is reflected in the wording of the auditor's standard
audit report through the phrase "the financial statements present fairly in all
material respects." this is the manner in which the auditor communicates the notion
of materiality to the users of the auditor's report. the auditor's standard report
4
