Solution Manual For Auditing and Assurance Services 9th Edition by Timothy Louwers, Penelope Bagley| Verified Chapter's 1 - 12 | Complete

Chapter 01 - Auditing and Assurance
zs zs zs zs zs

Services
zs




Solution Manual For Auditing & Assurance Services
9th Edition by Timothy Louwers, Penelope Bagley

,Chapter 01 z s z s - z s Auditing and z s

Assurance
z s




CHAPTER 01 z s




Auditing z s and z s Assurance z s Services

LEARNING OBJECTIVES z s




Review Multiple Exercises, Problems, zs

Checkpoints
zs Choiczs and
zs


e Simulations
z s




1. z s Define information risk and explain
z s z s z s z s 1, z s 2, z s 3 29, z s 31, z s 38 65*
how the financial statement auditing
z s zs zs zs zs

process helps
zs to reduce zs z s z s z s z s z s

this
z s risk, thereby
z s z s z s z s

reducing the cost of capital for z s z s z s z s z s

a company.
z s zs




2. Define z s and z s contrast assurance, z s 4, z s 5, z s 6, 23, 25, z s z s 28, 60, z s 65*
attestation, z s 7, z s 8 44,
z s

and z s financial z s statement auditing z s 50
services. z s




3. Describe and define the assertions
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that management
z s zsmakes about z s z s 41,
z s 68, 69
z s z s

z the recognition, measurement,
s zs z s 45,
presentation, and
z s disclosure of zs z s z s 46, 47, z s z s 48,
z the s financial statements and
z s zs z s 49,
z s

explain why auditors use them as
z s z s z s z s zs z s 52,
a focal point of the audit.
z s z s z s z s z s z s 53, 54, z s z s 55,
57,
z s

58,
59

4. Define professional skepticism and
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explain its key characteristics.
z s zs z s z s




5. Describe the organization of public
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accounting firms and identify the
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various services that they offer.
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6. Describe the audits and z s z s z s 15, 16, z s z s 17, 26, 27, z s z s 32, 64, z s 66
auditors in governmental,
z s zs z s 18
z s 34,
z s

internal, and operational
z s z s zs 35
auditing.
z s




7. List and explain the requirements
z s z s z s z s 19, 20, z s z s 21, 33, z s 43, z s 51 70, z s 71
for becoming a certified public
z s zs z s z s z s 22
z s

accountant (CPA) and other
z s zs z s z s

certifications available to an
z s z s zs z s

accounting professional.
z s z s




(*) z s Item relates z s z s to z s multiple z s learning z s objectives

,Chapter 01
z s z s - z s Auditing and z s

Assurance
z s




SOLUTIONS z s FOR z s REVIEW z s CHECKPOINTS
1.1 Business z s risk is zthe s z s z s risk z s that z s an z s entity z s will z s fail z s to z s meet z s its
z s business When assessing business risk, a professional
z s must objectives. z s zs z s z s z s z s z s

consider
z s all possible threats to an entity‘s goals and
z s objectives. Some z s z s z s z s z s z s zs z s z s

illustrative
z s examples include the risk that: 1) its existing customers
z s z s z s z s z s z s z s z s z s

will start buying
zs products
z s or services from its primary competitors; z s 2) z s z s z s z s z s z s z s z s

its
z s product lines will become
z s obsolete; 3) its taxes will increase; 4) z s z s zs z s z s z s z s z s z s z s

key
z s government contracts will be lost; 5)
z s z s z s z s z s z s

key employees will leave the entity; and
z s many other examples exist. z s z s z s z s z s z s z s z s z s




1.2 To help
z s minimize business risk and take advantage
z s of other opportunities z s z s z s z s z s z s z s z s

z s presented in today‘s competitive business environment,
z s decision makers such
z s zs z s z s z s z s z s

z s as chief z executive
s officers (CEOs) demand timely,z relevant,
s and reliable z s z s zs z s z s z s z s

z s information. There are at least four environmental conditions that z s increase z s z s z s z s z s zs z s z s

z s demand for reliable information. First, z complexity
s which implies that
z s z s z s z s z s z s z s

zs events and transactions z in today‘s
s global business environment
z s can be z s z s z s z s z s z s z s

z s complicated. Most investors do not have the level of expertise
z s needed zs z s z s z s z s z s z s z s z s

z s to properly z account
s for complex transactions. Second is remoteness z s z s z s zs z s z s z s

z s which implies that decision z makers s are often separated from current and z s z s z s z s z s z s zs z s z s

z s potential business relationships due to distance and z s time. For example, z s z s z s z s z s z s z s z s

zs investors may not be able to visit
z s distant locations to check up
z s z s z s z s z s z s z s z s z s z s

z s on their investments.
z s Third is time-sensitivity which z impliess that in z s zs z s z s z s z s z s

z s today‘s economic environment, investors
z and s other users of financial z s z s z s z s zs z s z s

z s statements need to make decisions more rapidly z than s ever before. z s z s z s z s z s z s z s z s

z s As a result, zthe ability
s to promptly
zs obtain high-quality information z is s z s z s z s z s z s z s z s

z s essential. Fourth is a consequence which implies that decisions may very
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z s well involve significant investments.
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zs a zresult,
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z information
s cannot be z s z s z s z s z s z s z s z s

z s obtained

1.3 Of all the different
z s risks discussed in the chapter
z s up to this point,
z s information z s z s z s z s z s z s z s z s z s z s z s risk
z sis the z s

one that is most
z s likely to create the demand
z s for independent and z s z s z s z s z s z s z s z s z s

objective assurance
z s services is information risk or z s the probability that z s zs z s z s z s z s z s z s

the
z s information circulated
z by s an entity will be z s z s z s z s z s z s

false or misleading. z Because
s the primary source
z s of information for z s z s z s z s z s z s z s

investors
z s and creditors is the company itself, an incentive exists
z s for z s z s zs z s z s z s z s z s z s

that company‘s management to
z s z s make their business or service appear to z s z s z s z s z s zs z s z s z s

be better
z s than it actually
z s may be, to put their best
z s foot forward. z s z s z s z s z s z s z s z s z s z s

z As s a result, preparers
z and s issuers of zs financial information (directors, z s z s z s z s z s z s z s

z managers,
s accountants, and other people employed in a
z business)
s might z s zs z s z s z s z s z s z s

z benefit
s by giving false, misleading, or
z overly optimistic
s information. This
z s z s z s z s z s zs z s z s

z potential
s conflict of interest between information z providers
s and users z s z s z s z s z s z s zs

z which s provides the underlying basis
z for s the demand for reliable z s z s z s z s z s z s z s z s

z information.
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1.4 The z s four z s major z s elements z s of the z s z s broad z s definition z s of z s assurance z s services z s are

Independence. CPAs want to preserve z s z s z s z s their reputation and competitive z s z s z s z s advantage
by always preserving
z s integrity
z s and zs z s z s z s objectivity when performing z s z s z s assurance
z services.
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Professional services. Virtually all work performed by CPAs is defined as z s z s z s z s z s z s z s z s z s z s

―professional services‖ as long as
z s it involves some element of zs z s z s z s z s z s z s z s z s

zjudgments based on education and experience. z s z s z s z s zs




Improving the quality of information or its context. The emphasis
z s is on z s z s z s z s z s z s z s z s z s z s

―information,‖
z s CPAs‘ traditional area of expertise. CPAs can enhance z s zs z s z s z s z s z s z s

zquality s by assuring users about the reliability and
z s relevance of z s z s z s z s z s zs z s z s

zinformation,
s and these two features are closely related to the z s z s z s z s z s z s z s z s z s

zfamiliar credibility-lending
s products of attestation and audit services. ―Context‖
zs z s z s z s z s z s z s z s z s is

, Chapter 01 - Auditing and
z s z s z s z s

Assurance
z s


relevance in a different light. For assurance services, improving
z s z s z s z s zs z s z s z s z s z s the context of
z s z s

information
z s refers to improving its usefulness
z when targeted
s z s z s z s zs z s z s z s to particular
z s

z decision
s makers in the surroundings
z s of particular z s z s z s z s z s

decision problems. z s




For decision makers.
z s z s z sAs the ―consumers‖ of assurance services, decision makers are
z s z s z s z s z s z s z s z s

the beneficiaries of
z s zs z s z sthe assurance services. Decision makers may or may not be
z s z s z s z s z s z s z s z s z s

the ―client‖ that
z s z s z s z s pays the fee and may or may not be
zs z s one of
z s the z s z s z s z s z s z s z s z s

zparties
s to an z s z s z s assertion or other information,
z but they
s personify z the
s z s z s zs z s z s

zconsumer
s focus z s z s of new zand different
s professional zwork. s z s z s z s




1.5 An z sassurance services engagement is any assignment
z s that improves the
z s z s z s z s z s z s z s

z s quality of information, or
z s its context, for
z s decision makers. Because zs z s z s z s z s z s z s

z s information (e.g., financial statements)z are prepared
s by managers
z s of an z s z s zs z s z s z s z s

z s entity who have authority and responsibility for
z s z s financial
z s success or failure, z s z s z s z s z s zs z s

z s an outsider may be skeptical that
z s the information
z s truly is objective,
z s z s z s z s z s z s z s z s

z s free from bias,
z s z s