Test Bank for Auditing & Assurance Services A Systematic Approach 12e Messier 2026 All Chapter 1-21 Complete Guide A+ ISBN:9781264468690 Newest Version Instant Pdf Download

Solution Manual for Auditing & Assurance Services A Systematic
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bg Approach 12th Edition by William Messier Jr, Steven Glover, Douglas
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Prawit bg bg

,SOLUTION MANUAL FOR bg bg




Auditing & Assurance Services A Systematic Approach 12e
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Messier Chapter 1-21
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CHAPTER 1 bg



AN INTRODUCTION TO ASSURANCE AND FINANCIAL
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STATEMENT AUDITING
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Answers to Review Questionsbg bg bg




1-1 The study of auditing is more conceptual in nature as compared to other
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bgaccounting courses. Rather than focusing on learning the rules,
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techniques, and computations required to prepare financial statements,
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auditing emphasizes learning a framework of analytical and logical skills.
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This framework enables auditors to evaluate the relevance and reliability of
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the systems and processes responsible for financial information as well as
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bgthe information itself. To be successful, students must learn
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bgframework and then learn to use logic and common sense in applying
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bgauditing concepts to various circumstances
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Understanding auditing can improve the decision-making ability of
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bgconsultants, business managers, and accountants by providing a framework
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for evaluating the usefulness and reliability of information—an important task
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in many different business contexts.
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1-2 There is a demand for auditing in a free-market economy because the
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agency relationship between an absentee owner and a manager produces a
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natural conflict of interest due to the information asymmetry that exists
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between these two parties. As a result, the agent agrees to be monitored as
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part of his/her employment contract. Auditing appears to be a cost-
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effective form of monitoring. The empirical evidence suggests that auditing
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was demanded prior to government regulation. In 1926, before it was
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required by law, independent auditors audited 82 percent of the companies
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on the New York Stock Exchange. Additionally, many private companies
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b and municipalities not subject to government regulations, such as the
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Securities Act of 1933 and Securities Exchange Act of 1934, also purchase
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various forms of auditing and assurance services. Many private companies
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seek out financial statement audits in order to secure financing for their
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operations. Companies preparing to go public also benefit from having an
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audit.
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1-3 The agency relationship between an owner and manager produces a natural
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conflict of interest because of differences in the two parties’ goals and
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because of the information asymmetry that exists between them. That
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is, the manager likely has
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generally has more information about the "true"
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results of operations of the entity than the absentee owner does. If
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both parties seek to maximize their own self-interest, the manager may
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, not act in the best interest of the owner and may manipulate the information
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provided to the owner accordingly.
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, 1-4 Independence is a bedrock principle for auditors. If an auditor is not
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independent of the client, users may lose confidence in the auditor’s ability
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to report objectively and
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auditor’s work loses its value. From an agency perspective, if the principal
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(owner) knows that the auditor is not independent, the owner will not
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b gtrust the auditor’s work. Thus, the agent will not hire the auditor
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bgbecause the auditor’s report will not be effective in reducing
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b g information risk from the perspective of the owner. Auditor independence
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bgis also a regulatory requirement.
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1-5 Auditing (broadly defined) is a systematic process of (1) objectively
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bgobtaining and evaluating evidence regarding assertions about economic
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bgactions and events to ascertain the degree of correspondence between
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b gthose assertions and established criteria and (2) communicating the results
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to interested users.
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Attest services occur when a practitioner issues a report on subject
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bgmatter, or an assertion about subject matter, that is the responsibility of
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another party.
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Assurance services are independent professional services that improve the
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bgquality of information, or its context, for decision makers.
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1-6 Auditing is a specific form of ―attest service,‖ which in turn is a
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bgspecific category of b g bg


―assurance service.‖ In other words, the phrase ―assurance services‖
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constitutes the broadest category of professional services provided by
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CPAs that serve to improve the quality or context of information for
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decision making for other parties.
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specific category of assurance that CPAs can provide. These services are
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intended to reduce information risk to parties relying on
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provided by a party that is creating, or making assertions about, subject
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b gmatter of interest. CPAs can provide attest services relating to a
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wide variety of subject matter (or assertions about that subject
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bgmatter) to reduce the information risk to third parties. One such subject
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matter is a set of financial statements. When a CPA provides a very in-
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depth, detailed attest service that follows relevant standards to constitute
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a complete examination of a set of financial statements and
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related assertions, this is called a financial statement ―audit.‖
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1-7 Audit risk is defined
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unknowingly fail to appropriately modify his or her opinion on
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financial statements that
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Materiality
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b gmisstatement of accounting information that, in the light of
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surrounding circumstances, makes it probable that the judgment of a
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bgreasonable person relying on the information would have been changed or
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influenced by the omission or misstatement" (FASB Statement of Financial
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Accounting Concepts No. 8, Chapter 3: Qualitative Characteristics of
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Useful Accounting Information, which is pending revision at the time
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of the writing of this book per the Board’s November 2017
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decision to revert to a definition of materiality similar to the one found in
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superseded Concept No. 2).
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