Complete Solution Manual for Auditing & Assurance Services, 8th
H H H H H H H H
Edition By Timothy Louwers
H H H H
CHAPTER H01
Auditing Hand HAssurance HServices
LEARNING HOBJECTIVES
Review Multiple Exercises,
HCheckpoints HChoice HProblems, Hand
HSimulations
1. H Define Hinformation Hrisk Hand Hexplain Hhow 1, H2, H3 29, H31, H38 65*
Hthe Hfinancial Hstatement Hauditing Hprocess
Hhelps Hto Hreduce Hthis Hrisk, Hthereby
Hreducing Hthe Hcost Hof Hcapital Hfor Ha
Hcompany.
2. Define Hand Hcontrast Hfinancial Hstatement 4, H5, H6, H7, H8 23, H25, H28, H44, 60, H65*
Hauditing, Hattestation, Hand Hassurance 50
Hservices.
3. Describe Hand Hdefine Hthe Hassertions Hthat 9, H10, H11 36, H39, H40, H41, 62, H63, H67
Hmanagement Hmakes Habout Hthe Hrecognition, H45,
Hmeasurement, Hpresentation, Hand Hdisclosure 46, H47, H48, H49,
Hof Hthe Hfinancial Hstatements Hand Hexplain H52,
Hwhy Hauditors Huse Hthem Has Ha Hfocal Hpoint Hof 53, H54, H55, H57,
Hthe Haudit. H58,
59
4. Define Hprofessional Hskepticism Hand Hexplain 12 24, H37 61
Hits Hkey Hcharacteristics.
5. Describe Hthe Horganization Hof Hpublic 13, H14 30, H42, H56 64*
Haccounting Hfirms Hand Hidentify Hthe Hvarious
Hservices Hthat Hthey Hoffer.
6. Describe Hthe Haudits Hand Hauditors Hin 15, H16, H17, H18 26, H27, H32, H34, H35 64*, H66
Hgovernmental, Hinternal, Hand
Hoperational Hauditing.
1-1
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
,7. List Hand Hexplain Hthe Hrequirements Hfor 19, H20, H21, H22 33, H43, H51 68, H69
Hbecoming Ha Hcertified Hpublic Haccountant
H(CPA) Hand Hother Hcertifications Havailable
Hto Han Haccounting Hprofessional.
1-2
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
,(*) HItem Hrelates Hto Hmultiple Hlearning Hobjectives
1-3
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
, SOLUTIONS HFOR HREVIEW HCHECKPOINTS
1.1 Business Hrisk His Hthe Hrisk Hthat Han H entity Hwill Hfail Hto Hmeet Hits H business Hobjectives. H When Hassessing
Hbusiness Hrisk, Ha Hprofessional Hmust Hconsider Hall Hpossible Hthreats Hto Han Hentity‘s Hgoals Hand Hobjectives.
HSome Hillustrative Hexamples Hinclude Hthe Hrisk Hthat: H1) H its Hexisting Hcustomers Hwill Hstart Hbuying
Hproducts Hor Hservices Hfrom Hits Hprimary Hcompetitors; H2) Hits Hproduct Hlines Hwill Hbecome Hobsolete; H3) Hits
Htaxes Hwill Hincrease; H4) Hkey Hgovernment Hcontracts Hwill Hbe Hlost; H5) Hkey Hemployees Hwill Hleave Hthe
Hentity; Hand Hmany Hother Hexamples Hexist.
1.2 To Hhelp Hminimize Hbusiness Hrisk Hand Htake Hadvantage Hof Hother Hopportunities Hpresented Hin Htoday‘s
Hcompetitive Hbusiness Henvironment, Hdecision Hmakers Hsuch Has Hchief Hexecutive Hofficers H(CEOs)
Hdemand Htimely, Hrelevant, Hand Hreliable Hinformation. H There Hare Hat Hleast Hfour Henvironmental Hconditions
Hthat Hincrease Hdemand Hfor Hreliable Hinformation. HFirst, Hcomplexity Hwhich Himplies Hthat Hevents Hand
Htransactions Hin Htoday‘s Hglobal Hbusiness Henvironment Hcan Hbe Hcomplicated. H Most Hinvestors Hdo Hnot
Hhave Hthe Hlevel Hof Hexpertise Hneeded Hto Hproperly Haccount Hfor Hcomplex Htransactions. H Second His
Hremoteness Hwhich Himplies Hthat Hdecision Hmakers Hare Hoften Hseparated Hfrom Hcurrent Hand Hpotential
Hbusiness Hrelationships Hdue Hto Hdistance Hand Htime. HFor Hexample, Hinvestors Hmay Hnot Hbe Hable Hto Hvisit
Hdistant Hlocations Hto Hcheck Hup Hon Htheir Hinvestments. H Third His Htime-sensitivity Hwhich Himplies Hthat Hin
Htoday‘s Heconomic Henvironment, Hinvestors Hand Hother Husers Hof Hfinancial Hstatements Hneed Hto Hmake
Hdecisions Hmore Hrapidly Hthan Hever Hbefore. H As Ha Hresult, Hthe Hability Hto Hpromptly Hobtain Hhigh-quality
Hinformation His Hessential. HFourth His Ha Hconsequence Hwhich Himplies Hthat Hdecisions Hmay Hvery Hwell
Hinvolve Hsignificant Hinvestments. H As Ha Hresult, Hthe Hconsequences Hcan Hbe Hsevere Hif Hinformation Hcannot
Hbe Hobtained
1.3 Of Hall Hthe Hdifferent Hrisks Hdiscussed Hin Hthe Hchapter Hup Hto Hthis Hpoint, Hinformation Hrisk His Hthe Hone Hthat
His Hmost Hlikely Hto Hcreate Hthe Hdemand Hfor Hindependent Hand Hobjective Hassurance Hservices His
Hinformation Hrisk Hor Hthe Hprobability Hthat Hthe Hinformation Hcirculated Hby Han Hentity Hwill Hbe Hfalse Hor
Hmisleading. HBecause Hthe Hprimary Hsource Hof Hinformation Hfor Hinvestors Hand Hcreditors His Hthe Hcompany
Hitself, Han Hincentive Hexists Hfor Hthat Hcompany‘s Hmanagement Hto Hmake Htheir Hbusiness Hor Hservice Happear
Hto Hbe Hbetter Hthan Hit Hactually Hmay Hbe, Hto Hput Htheir Hbest Hfoot Hforward. H As Ha Hresult, Hpreparers Hand
Hissuers Hof Hfinancial Hinformation H(directors, Hmanagers, Haccountants, Hand Hother Hpeople Hemployed Hin Ha
Hbusiness) Hmight Hbenefit Hby Hgiving Hfalse, Hmisleading, Hor Hoverly Hoptimistic Hinformation. HThis Hpotential
Hconflict Hof Hinterest Hbetween Hinformation Hproviders Hand Husers Hwhich Hprovides Hthe Hunderlying Hbasis
Hfor Hthe Hdemand Hfor Hreliable Hinformation.
1.4 According Hto Hthe HAmerican HAccounting HAssociation, H―Auditing His Ha Hsystematic Hprocess Hof
Hobjectively Hobtaining Hand Hevaluating Hevidence Hregarding Hassertions Habout Heconomic Hactions Hand
Hevents Hto Hascertain Hthe Hdegree Hof Hcorrespondence Hbetween Hthe Hassertions Hand Hestablished Hcriteria
Hand Hcommunicating Hthe Hresults Hto Hinterested Husers.‖ H In Heffect, Hauditors Hadd Hreliability Hto Hthe
Hinformation Hthat His Hprovided Hto Hinterested Husers. HOf Hcourse, Hthis Hdefinition His Hfocused Hon Han
Hexternal Hreporting Hcontext. H Students Hmay Halso Hdiscuss Hhow Hgovernmental Hand Hinternal Hauditors
Hoperate Has Hwell.
In Hresponse Hto H―What Hdo Hauditors Hdo?‖ Hstudents Hcan Hrespond Hby Hstating Hthat Hauditors H (1) Hobtain Hand
Hevaluate Hevidence Habout Hassertions Hmade Hby Hmanagement Habout Heconomic Hactions Hand Hevents, H(2)
Hascertain Hthe Hdegree Hof Hcorrespondence Hbetween Hthe Hassertions Hand Hthe Happropriate Hreporting
Hframework, Hand H(3) Hissue Han Haudit Hreport H(opinion). HStudents Hcan Halso Hrespond Hmore Hgenerally Hby
Hstating Hthat Hauditors Hessentially Hlend Hcredibility Hto Hthe Hfinancial Hstatements Hpresented Hby
Hmanagement.
1.5 An Hattestation Hengagement His H―an Hengagement Hin Hwhich Ha Hpractitioner His Hengaged Hto Hissue Hor
Hdoes Hissue Ha Hwritten Hcommunication Hthat Hexpresses Ha Hconclusion Habout Hthe Hreliability Hof Ha Hwritten
Hassertion Hthat His Hthe Hresponsibility Hof Hanother Hparty‖(SSAE H10, HAT H101.01). H To Hattest Hmeans Hto
Hlend Hcredibility Hor Hto Hvouch Hfor Hthe Htruth Hor Haccuracy Hof Hthe Hstatements Hthat Hone Hparty Hmakes Hto
Hanother. H The Hattest Hfunction His Ha Hterm Hoften Happlied Hto Hthe Hactivities Hof Hindependent HCPAs Hwhen
Hacting Has Hauditors Hof Hfinancial Hstatements.
1-4
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
H H H H H H H H
Edition By Timothy Louwers
H H H H
CHAPTER H01
Auditing Hand HAssurance HServices
LEARNING HOBJECTIVES
Review Multiple Exercises,
HCheckpoints HChoice HProblems, Hand
HSimulations
1. H Define Hinformation Hrisk Hand Hexplain Hhow 1, H2, H3 29, H31, H38 65*
Hthe Hfinancial Hstatement Hauditing Hprocess
Hhelps Hto Hreduce Hthis Hrisk, Hthereby
Hreducing Hthe Hcost Hof Hcapital Hfor Ha
Hcompany.
2. Define Hand Hcontrast Hfinancial Hstatement 4, H5, H6, H7, H8 23, H25, H28, H44, 60, H65*
Hauditing, Hattestation, Hand Hassurance 50
Hservices.
3. Describe Hand Hdefine Hthe Hassertions Hthat 9, H10, H11 36, H39, H40, H41, 62, H63, H67
Hmanagement Hmakes Habout Hthe Hrecognition, H45,
Hmeasurement, Hpresentation, Hand Hdisclosure 46, H47, H48, H49,
Hof Hthe Hfinancial Hstatements Hand Hexplain H52,
Hwhy Hauditors Huse Hthem Has Ha Hfocal Hpoint Hof 53, H54, H55, H57,
Hthe Haudit. H58,
59
4. Define Hprofessional Hskepticism Hand Hexplain 12 24, H37 61
Hits Hkey Hcharacteristics.
5. Describe Hthe Horganization Hof Hpublic 13, H14 30, H42, H56 64*
Haccounting Hfirms Hand Hidentify Hthe Hvarious
Hservices Hthat Hthey Hoffer.
6. Describe Hthe Haudits Hand Hauditors Hin 15, H16, H17, H18 26, H27, H32, H34, H35 64*, H66
Hgovernmental, Hinternal, Hand
Hoperational Hauditing.
1-1
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
,7. List Hand Hexplain Hthe Hrequirements Hfor 19, H20, H21, H22 33, H43, H51 68, H69
Hbecoming Ha Hcertified Hpublic Haccountant
H(CPA) Hand Hother Hcertifications Havailable
Hto Han Haccounting Hprofessional.
1-2
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
,(*) HItem Hrelates Hto Hmultiple Hlearning Hobjectives
1-3
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
, SOLUTIONS HFOR HREVIEW HCHECKPOINTS
1.1 Business Hrisk His Hthe Hrisk Hthat Han H entity Hwill Hfail Hto Hmeet Hits H business Hobjectives. H When Hassessing
Hbusiness Hrisk, Ha Hprofessional Hmust Hconsider Hall Hpossible Hthreats Hto Han Hentity‘s Hgoals Hand Hobjectives.
HSome Hillustrative Hexamples Hinclude Hthe Hrisk Hthat: H1) H its Hexisting Hcustomers Hwill Hstart Hbuying
Hproducts Hor Hservices Hfrom Hits Hprimary Hcompetitors; H2) Hits Hproduct Hlines Hwill Hbecome Hobsolete; H3) Hits
Htaxes Hwill Hincrease; H4) Hkey Hgovernment Hcontracts Hwill Hbe Hlost; H5) Hkey Hemployees Hwill Hleave Hthe
Hentity; Hand Hmany Hother Hexamples Hexist.
1.2 To Hhelp Hminimize Hbusiness Hrisk Hand Htake Hadvantage Hof Hother Hopportunities Hpresented Hin Htoday‘s
Hcompetitive Hbusiness Henvironment, Hdecision Hmakers Hsuch Has Hchief Hexecutive Hofficers H(CEOs)
Hdemand Htimely, Hrelevant, Hand Hreliable Hinformation. H There Hare Hat Hleast Hfour Henvironmental Hconditions
Hthat Hincrease Hdemand Hfor Hreliable Hinformation. HFirst, Hcomplexity Hwhich Himplies Hthat Hevents Hand
Htransactions Hin Htoday‘s Hglobal Hbusiness Henvironment Hcan Hbe Hcomplicated. H Most Hinvestors Hdo Hnot
Hhave Hthe Hlevel Hof Hexpertise Hneeded Hto Hproperly Haccount Hfor Hcomplex Htransactions. H Second His
Hremoteness Hwhich Himplies Hthat Hdecision Hmakers Hare Hoften Hseparated Hfrom Hcurrent Hand Hpotential
Hbusiness Hrelationships Hdue Hto Hdistance Hand Htime. HFor Hexample, Hinvestors Hmay Hnot Hbe Hable Hto Hvisit
Hdistant Hlocations Hto Hcheck Hup Hon Htheir Hinvestments. H Third His Htime-sensitivity Hwhich Himplies Hthat Hin
Htoday‘s Heconomic Henvironment, Hinvestors Hand Hother Husers Hof Hfinancial Hstatements Hneed Hto Hmake
Hdecisions Hmore Hrapidly Hthan Hever Hbefore. H As Ha Hresult, Hthe Hability Hto Hpromptly Hobtain Hhigh-quality
Hinformation His Hessential. HFourth His Ha Hconsequence Hwhich Himplies Hthat Hdecisions Hmay Hvery Hwell
Hinvolve Hsignificant Hinvestments. H As Ha Hresult, Hthe Hconsequences Hcan Hbe Hsevere Hif Hinformation Hcannot
Hbe Hobtained
1.3 Of Hall Hthe Hdifferent Hrisks Hdiscussed Hin Hthe Hchapter Hup Hto Hthis Hpoint, Hinformation Hrisk His Hthe Hone Hthat
His Hmost Hlikely Hto Hcreate Hthe Hdemand Hfor Hindependent Hand Hobjective Hassurance Hservices His
Hinformation Hrisk Hor Hthe Hprobability Hthat Hthe Hinformation Hcirculated Hby Han Hentity Hwill Hbe Hfalse Hor
Hmisleading. HBecause Hthe Hprimary Hsource Hof Hinformation Hfor Hinvestors Hand Hcreditors His Hthe Hcompany
Hitself, Han Hincentive Hexists Hfor Hthat Hcompany‘s Hmanagement Hto Hmake Htheir Hbusiness Hor Hservice Happear
Hto Hbe Hbetter Hthan Hit Hactually Hmay Hbe, Hto Hput Htheir Hbest Hfoot Hforward. H As Ha Hresult, Hpreparers Hand
Hissuers Hof Hfinancial Hinformation H(directors, Hmanagers, Haccountants, Hand Hother Hpeople Hemployed Hin Ha
Hbusiness) Hmight Hbenefit Hby Hgiving Hfalse, Hmisleading, Hor Hoverly Hoptimistic Hinformation. HThis Hpotential
Hconflict Hof Hinterest Hbetween Hinformation Hproviders Hand Husers Hwhich Hprovides Hthe Hunderlying Hbasis
Hfor Hthe Hdemand Hfor Hreliable Hinformation.
1.4 According Hto Hthe HAmerican HAccounting HAssociation, H―Auditing His Ha Hsystematic Hprocess Hof
Hobjectively Hobtaining Hand Hevaluating Hevidence Hregarding Hassertions Habout Heconomic Hactions Hand
Hevents Hto Hascertain Hthe Hdegree Hof Hcorrespondence Hbetween Hthe Hassertions Hand Hestablished Hcriteria
Hand Hcommunicating Hthe Hresults Hto Hinterested Husers.‖ H In Heffect, Hauditors Hadd Hreliability Hto Hthe
Hinformation Hthat His Hprovided Hto Hinterested Husers. HOf Hcourse, Hthis Hdefinition His Hfocused Hon Han
Hexternal Hreporting Hcontext. H Students Hmay Halso Hdiscuss Hhow Hgovernmental Hand Hinternal Hauditors
Hoperate Has Hwell.
In Hresponse Hto H―What Hdo Hauditors Hdo?‖ Hstudents Hcan Hrespond Hby Hstating Hthat Hauditors H (1) Hobtain Hand
Hevaluate Hevidence Habout Hassertions Hmade Hby Hmanagement Habout Heconomic Hactions Hand Hevents, H(2)
Hascertain Hthe Hdegree Hof Hcorrespondence Hbetween Hthe Hassertions Hand Hthe Happropriate Hreporting
Hframework, Hand H(3) Hissue Han Haudit Hreport H(opinion). HStudents Hcan Halso Hrespond Hmore Hgenerally Hby
Hstating Hthat Hauditors Hessentially Hlend Hcredibility Hto Hthe Hfinancial Hstatements Hpresented Hby
Hmanagement.
1.5 An Hattestation Hengagement His H―an Hengagement Hin Hwhich Ha Hpractitioner His Hengaged Hto Hissue Hor
Hdoes Hissue Ha Hwritten Hcommunication Hthat Hexpresses Ha Hconclusion Habout Hthe Hreliability Hof Ha Hwritten
Hassertion Hthat His Hthe Hresponsibility Hof Hanother Hparty‖(SSAE H10, HAT H101.01). H To Hattest Hmeans Hto
Hlend Hcredibility Hor Hto Hvouch Hfor Hthe Htruth Hor Haccuracy Hof Hthe Hstatements Hthat Hone Hparty Hmakes Hto
Hanother. H The Hattest Hfunction His Ha Hterm Hoften Happlied Hto Hthe Hactivities Hof Hindependent HCPAs Hwhen
Hacting Has Hauditors Hof Hfinancial Hstatements.
1-4
Copyright H©2021 HMcGraw-Hill HEducation. HAll Hrights Hreserved. HNo Hreproduction Hor Hdistribution
Hwithout Hthe Hprior Hwritten Hconsent Hof HMcGraw-Hill HEducation.
