Principles of Auditing & Other Assurance
Services Whittington Study Resource
Table of Contents
Part Chapter Title
I 1 The Role of the Public Accountant in the American Economy
2 Professional Standards
3 Professional Ethics
4 Legal Liability of CPAs
II 5 Audit Evidence and Documentation
6 Audit Planning, Understanding the Client, Assessing Risks, and Responding
7 Internal Control
8 Consideration of Internal Control in an Information Technology Environment
9 Audit Sampling
III 10 Cash and Financial Investments
11 Accounts Receivable, Notes Receivable, and Revenue
12 Inventories and Cost of Goods Sold
13 Property, Plant, and Equipment: Depreciation and Depletion
14 Accounts Payable and Other Liabilities
15 Debt and Equity Capital
,Part Chapter Title
IV 16 Auditing Operations and Completing the Audit
17 Auditors' Reports
18 Integrated Audits of Public Companies
19 Additional Assurance Services: Historical Financial Information
20 Additional Assurance Services: Other Information
21 Internal, Operational, and Compliance Auditing
Sample Questions & Solutions (Chapter 1)
Review Question 1-1
Topic: Crisis of Credibility
Question: What was the "crisis of credibility" in the accounting profession, and what
major events contributed to it?
Answer:
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 were the 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 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 ethical standards of the profession .
Review Question 1-2
Topic: Assurance Services
Question: What are assurance services, and what are the two main types?
Answer:
Assurance services are professional services that enhance the quality of information,
or its context, for decision-making . The two types are:
1. Those that increase the reliability of information – Services that provide
assurance about the accuracy and credibility of information
2. Those that involve putting information in a form or context that facilitates
decision-making – Services that help users better understand and utilize
information
Review Question 1-3
Topic: Financial Statement Audit
Question: What is the most common type of attest engagement, and what is the
overall assertion made by management?
Answer:
, 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 .
Review Question 1-4
Topic: Reasons for Audits
Question: Why are large corporations with securities listed on stock exchanges
required to have audits?
Answer:
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 the annual 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 .
Review Question 1-5
Topic: Audit Report Requirements
Question: In which situations is a report by an independent public accountant
concerning the fairness of a company's financial statements commonly required?
Services Whittington Study Resource
Table of Contents
Part Chapter Title
I 1 The Role of the Public Accountant in the American Economy
2 Professional Standards
3 Professional Ethics
4 Legal Liability of CPAs
II 5 Audit Evidence and Documentation
6 Audit Planning, Understanding the Client, Assessing Risks, and Responding
7 Internal Control
8 Consideration of Internal Control in an Information Technology Environment
9 Audit Sampling
III 10 Cash and Financial Investments
11 Accounts Receivable, Notes Receivable, and Revenue
12 Inventories and Cost of Goods Sold
13 Property, Plant, and Equipment: Depreciation and Depletion
14 Accounts Payable and Other Liabilities
15 Debt and Equity Capital
,Part Chapter Title
IV 16 Auditing Operations and Completing the Audit
17 Auditors' Reports
18 Integrated Audits of Public Companies
19 Additional Assurance Services: Historical Financial Information
20 Additional Assurance Services: Other Information
21 Internal, Operational, and Compliance Auditing
Sample Questions & Solutions (Chapter 1)
Review Question 1-1
Topic: Crisis of Credibility
Question: What was the "crisis of credibility" in the accounting profession, and what
major events contributed to it?
Answer:
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 were the 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 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 ethical standards of the profession .
Review Question 1-2
Topic: Assurance Services
Question: What are assurance services, and what are the two main types?
Answer:
Assurance services are professional services that enhance the quality of information,
or its context, for decision-making . The two types are:
1. Those that increase the reliability of information – Services that provide
assurance about the accuracy and credibility of information
2. Those that involve putting information in a form or context that facilitates
decision-making – Services that help users better understand and utilize
information
Review Question 1-3
Topic: Financial Statement Audit
Question: What is the most common type of attest engagement, and what is the
overall assertion made by management?
Answer:
, 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 .
Review Question 1-4
Topic: Reasons for Audits
Question: Why are large corporations with securities listed on stock exchanges
required to have audits?
Answer:
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 the annual 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 .
Review Question 1-5
Topic: Audit Report Requirements
Question: In which situations is a report by an independent public accountant
concerning the fairness of a company's financial statements commonly required?
