SOLUTION MANUAL FOR
F F
Principles Of Auditing And Other Assurance Services
F F F F F F F F
23rd Edition By Ray Whittington Kurt
F F F F F F
ALL Chapters (1 - 21)
F F F F
, Table of Contents
F F
Chapter F1: FThe FRole Fof Fthe FPublic FAccountant Fin Fthe FAmericanEconomy
Chapter F2: FProfessional FStandards
Chapter F3: FProfessional FEthics
Chapter F4: FLegal FLiability Fof FCPAs
Chapter F5: FAudit FEvidence Fand FDocumentation
Chapter F6: FAudit FPlanning, FUnderstanding Fthe FClient, FAssessingRisks, Fand FResponding
Chapter F7: FInternal FControl
Chapter F8: FConsideration Fof FInternal FControl Fin Fan FInformationTechnology FEnvironment
Chapter F9: FAudit FSampling
Chapter F10: FCash Fand FFinancial FInvestments
Chapter F11: FAccounts FReceivable, FNotes FReceivable, FandRevenue
Chapter F12: FInventories Fand FCost Fof FGoods FSold
Chapter F13: FProperty, FPlant, Fand FEquipment: FDepreciation FandDepletion
Chapter F14: FAccounts FPayable Fand FOther FLiabilities
Chapter F15: FDebt Fand FEquity FCapital
Chapter F16: FAuditing FOperations Fand FCompleting Fthe FAudit
Chapter F17: FAuditors’ FReports
Chapter F18: FIntegrated FAudits Fof FPublic FCompanies
Chapter F19: FAdditional FAssurance FServices: FHistorical FFinancialInformation
Chapter F20: FAdditional FAssurance FServices: FOther FInformation
Chapter F21: FInternal, FOperational, Fand FCompliance FAuditing
,CHAPTER 1 F
The Role of the F F F
FPublic Accountant in
F F
Fthe
American Economy F
Review FQuestions
1-1 The F―crisis Fof Fcredibility‖ Flargely Farose Ffrom Fthe Fnumber Fof Fcompanies Fthat Frestated Ftheir Fpreviously
Fissued Ffinancial Fstatements F as F a F result F of F accounting Firregularities F and Ffraud. F Especially Fresponsible
FwereF the Fvery Fvisible FEnron Fand FWorldCom Ffraud Fcases. FBoth Fcompanies F filed Ffor Fbankruptcy Fand
F constituted Fthe Flargest F companies F in FAmerican Fhistory Fto Fdo Fso. F The Fextent F of F the Faccounting
Firregularities F and Ffraud Fbeing Finvestigated Fand Fdisclosed Fbrought F into Fquestion Fthe Feffectiveness F of
F financial Fstatement F audits. F In Faddition, Fthe Fcriminal Fconviction Fof FArthur FAndersen, FLLP, Fone Fof Fthe
Fthen FBig F5 F accounting Ffirms, Fon Fcharges F of F destroying Fdocuments F related Fto F the FEnron Fcase Fbrought
F into Fquestion Fthe Fethics F standards F of Fthe Fprofession.
1-2 Assurance Fservices Fare Fprofessional Fservices Fthat Fenhance Fthe Fquality Fof Finformation, For Fits Fcontext,
Ffor Fdecision-making. FThe Ftwo Ftypes Fare: F(a) Fthose Fthat Fincrease Fthe Freliability Fof Finformation Fand
F(b) Fthose Fthat Finvolve Fputting Finformation Fin Fa Fform For Fcontext Fthat Ffacilitates Fdecision-making.
1-3 A Ffinancial Fstatement F audit F is, Fby Ffar, Fthe Fmost F common Ftype Fof F attest F engagement. F The Foverall
Fassertion,Fmade Fby Fmanagement, Fmost Ffrequently Fis Fthat Fthe Ffinancial Fstatements Ffollow Fgenerally
Faccepted Faccounting Fprinciples.
1-4 A Flarge Fcorporation Fwith Fsecurities Flisted Fon Fa Fstock Fexchange Fis Frequired Fby Fthe Frules Fof Fthe Fstock
Fexchange Fand Fby Fthe Frules F of F the FSecurities F and FExchange FCommission Fto Fprovide Fan Faudit F report
F with FtheF annual Ffinancial Fstatements F furnished Fto Fits F stockholders. F It F also Fis F required Fto Fengage Fthe
Fauditors F to Fprovide Fan Fopinion Fon Fits Finternal Fcontrol. FApart Ffrom Flegal Frequirements, Fhowever, Fa
Flarge Flisted Fcorporation Frecognizes F that F it F must F maintain Finvestor Fconfidence Fin F the Freliability Fof F its
F financial Fstatements F and F internal F control F over F financial F reporting F if F it F is F to F continue F to F be F able F to
F secure F capital Ffrom Fthe Fpublic. F The Freport F by Fa F firm Fof F certified Fpublic Faccountants F adds F credibility
Fto Fthe Ffinancial Fstatements F prepared Fby Fthe Fcorporation. F When Fa F small Ffamily-owned Fenterprise
Felects F to Fhave Fan Faudit, Fthe Fpurpose Fusually Fis F to Fuse Fthe Fauditors' Freport F to Fsupport F an Fapplication
F for F a Fbank Floan.
, 1-5 A Freport F by Fan Findependent F public Faccountant F concerning Fthe Ffairness F of Fa F company's F financial
FstatementsF is Fcommonly Frequired Fin Fthe Ffollowing Fsituations:
(1) Application Ffor F a F bank Floan.
(2) Establishing Fcredit F for F purchase Fof F merchandise, Fequipment, For F other F assets.
(3) Reporting Foperating Fresults, F financial Fposition, F and Fcash Fflows F to Fabsentee Fowners
F (stockholdersF or Fpartners).
(4) Issuance Fof F securities F by Fa Fcorporation.
(5) Annual Ffinancial Fstatements F by Fa F corporation Fwith Fsecurities F listed Fon Fa F stock Fexchange For
F tradedFover Fthe Fcounter.
(6) Sale Fof F an Fongoing Fbusiness.
(7) Termination Fof F a F partnership.
1-6 To Fadd Fcredibility Fto Ffinancial Fstatements F is Fto Fincrease Fthe Flikelihood Fthat F they Fhave Fbeen Fprepared
Ffollowing Fthe Fappropriate Fcriteria, F usually Fgenerally Faccepted Faccounting Fprinciples. F As F such, F an
FincreaseFin Fcredibility Fresults F in Ffinancial Fstatements Fthat F can Fbe Fbelieved Fand Frelied Fupon Fby Fthird
Fparties.
1-7 Business F risk Fis F the Frisk Fthat F the Finvestment F will Fbe Fimpaired Fbecause Fa F company Finvested Fin Fis
F unable FtoFmeet F its F financial Fobligations F due Fto Feconomic Fconditions F or Fpoor Fmanagement F decisions.
F Information Frisk Fis Fthe Frisk Fthat Fthe Finformation Fused Fto Fassess Fbusiness Frisk Fis Fnot Faccurate.
FAuditors Fcan Fdirectly Freduce Finformation Frisk, Fbut Fhave Fonly Flimited Feffect Fon Fbusiness Frisk.
1-8 At Fthe Fbeginning Fof Fthe Fcentury, Fthe Fprincipal Fobjective Fof Fauditing Fwas F the Fprevention Fand Fdetection
Fof Ffraud. F Audit F work Fcentered Fon Fthe Fbalance Fsheet, Fbecause Fthe Fincome Fstatement F was F regarded Fas
F highly Fconfidential F and F not F for F public Fdisclosure. F Today, F the Fprincipal F objective Fof F auditing F is F to
F form Fan Fopinion Fon Fthe Ffairness F of F financial Fstatements F and Ftheir F conformity Fwith Fgenerally Faccepted
Faccounting Fprinciples. F But F the Fprofessional F standards F also F require Fthat F an F audit F be Fdesigned F to
Fprovide Freasonable Fassurance Fof F detecting F material F misstatements, F due Fto F errors F or F fraud. F Particular
F emphasis F is F placed F on Fthe Fincome Fstatement F which Fis F of F great F importance Fto Finvestors. F Auditing
Ftoday Falso Fhas F the Fobjectives F ofF meeting Fthe Frequirements F of Fthe FSecurities F and FExchange
FCommission F(SEC) F and Fthe FPublic FCompany FAccounting FOversight FBoard Ffor Fpublic Fcompanies.
1-9 The Fstatement F is F incorrect. FThe Fincreasing Fintegrated Fdatabases F of F today, Falong Fwith Favailable
FauditFprocedures Fmake Faudited Fentire Fpopulations Fa Fpossibility Fin Fmany Fsituations.
1-10 An Foperational Faudit F attempts F to Fmeasure Fthe Feffectiveness Fand Fefficiency Fof Fa Fspecific Funit F of Fan
Forganization. F It F involves F more Fsubjective Fjudgments F than Fa Fcompliance Faudit F or Fan Faudit F of
Ffinancial Fstatements F because Fthe Fcriteria F of F effectiveness F and Fefficiency Fof F departmental
Fperformance Fare Fnot F asF clearly Festablished Fas F are Fmany Flaws F and Fregulations For Fgenerally
Faccepted Faccounting Fprinciples.
The Freport F prepared Fafter F completion Fof F an Foperational Faudit F is F usually Fdirected Fto
FmanagementFof Fthe Forganization Fin Fwhich Fthe Faudit Fwork Fwas Fdone.
1-11 A Fcompliance Faudit Fis Fan Faudit Fto Fdetermine Fwhether Ffinancial Freports For Fother Fassertions Fare F in
Fcompliance Fwith Festablished Fcriteria. F The Fnecessary Fingredients F are Fverifiable Fdata F and Fthe Fexistence
Fof Fstandards F established Fby Fan Fauthoritative Fbody. F An Foperational Faudit, F on Fthe Fother F hand, F is F a
F review Fof F aF
department F or Fother Funit F of Fa Fbusiness F or Fgovernmental Forganization Fto Fmeasure Fthe
Feffectiveness F and Fefficiency Fof F operations. F Internal Fauditors F often Fperform Foperational Faudits F as F do
Fauditors F employed Fby Fthe FGovernment FAccountability FOffice F(GAO) Fof Fthe Ffederal Fgovernment.
1-12 Internal Fauditors F must F be Findependent F of Fthe Fdepartment F heads Fand Fother Fline Fexecutives F whose Fwork
F F
Principles Of Auditing And Other Assurance Services
F F F F F F F F
23rd Edition By Ray Whittington Kurt
F F F F F F
ALL Chapters (1 - 21)
F F F F
, Table of Contents
F F
Chapter F1: FThe FRole Fof Fthe FPublic FAccountant Fin Fthe FAmericanEconomy
Chapter F2: FProfessional FStandards
Chapter F3: FProfessional FEthics
Chapter F4: FLegal FLiability Fof FCPAs
Chapter F5: FAudit FEvidence Fand FDocumentation
Chapter F6: FAudit FPlanning, FUnderstanding Fthe FClient, FAssessingRisks, Fand FResponding
Chapter F7: FInternal FControl
Chapter F8: FConsideration Fof FInternal FControl Fin Fan FInformationTechnology FEnvironment
Chapter F9: FAudit FSampling
Chapter F10: FCash Fand FFinancial FInvestments
Chapter F11: FAccounts FReceivable, FNotes FReceivable, FandRevenue
Chapter F12: FInventories Fand FCost Fof FGoods FSold
Chapter F13: FProperty, FPlant, Fand FEquipment: FDepreciation FandDepletion
Chapter F14: FAccounts FPayable Fand FOther FLiabilities
Chapter F15: FDebt Fand FEquity FCapital
Chapter F16: FAuditing FOperations Fand FCompleting Fthe FAudit
Chapter F17: FAuditors’ FReports
Chapter F18: FIntegrated FAudits Fof FPublic FCompanies
Chapter F19: FAdditional FAssurance FServices: FHistorical FFinancialInformation
Chapter F20: FAdditional FAssurance FServices: FOther FInformation
Chapter F21: FInternal, FOperational, Fand FCompliance FAuditing
,CHAPTER 1 F
The Role of the F F F
FPublic Accountant in
F F
Fthe
American Economy F
Review FQuestions
1-1 The F―crisis Fof Fcredibility‖ Flargely Farose Ffrom Fthe Fnumber Fof Fcompanies Fthat Frestated Ftheir Fpreviously
Fissued Ffinancial Fstatements F as F a F result F of F accounting Firregularities F and Ffraud. F Especially Fresponsible
FwereF the Fvery Fvisible FEnron Fand FWorldCom Ffraud Fcases. FBoth Fcompanies F filed Ffor Fbankruptcy Fand
F constituted Fthe Flargest F companies F in FAmerican Fhistory Fto Fdo Fso. F The Fextent F of F the Faccounting
Firregularities F and Ffraud Fbeing Finvestigated Fand Fdisclosed Fbrought F into Fquestion Fthe Feffectiveness F of
F financial Fstatement F audits. F In Faddition, Fthe Fcriminal Fconviction Fof FArthur FAndersen, FLLP, Fone Fof Fthe
Fthen FBig F5 F accounting Ffirms, Fon Fcharges F of F destroying Fdocuments F related Fto F the FEnron Fcase Fbrought
F into Fquestion Fthe Fethics F standards F of Fthe Fprofession.
1-2 Assurance Fservices Fare Fprofessional Fservices Fthat Fenhance Fthe Fquality Fof Finformation, For Fits Fcontext,
Ffor Fdecision-making. FThe Ftwo Ftypes Fare: F(a) Fthose Fthat Fincrease Fthe Freliability Fof Finformation Fand
F(b) Fthose Fthat Finvolve Fputting Finformation Fin Fa Fform For Fcontext Fthat Ffacilitates Fdecision-making.
1-3 A Ffinancial Fstatement F audit F is, Fby Ffar, Fthe Fmost F common Ftype Fof F attest F engagement. F The Foverall
Fassertion,Fmade Fby Fmanagement, Fmost Ffrequently Fis Fthat Fthe Ffinancial Fstatements Ffollow Fgenerally
Faccepted Faccounting Fprinciples.
1-4 A Flarge Fcorporation Fwith Fsecurities Flisted Fon Fa Fstock Fexchange Fis Frequired Fby Fthe Frules Fof Fthe Fstock
Fexchange Fand Fby Fthe Frules F of F the FSecurities F and FExchange FCommission Fto Fprovide Fan Faudit F report
F with FtheF annual Ffinancial Fstatements F furnished Fto Fits F stockholders. F It F also Fis F required Fto Fengage Fthe
Fauditors F to Fprovide Fan Fopinion Fon Fits Finternal Fcontrol. FApart Ffrom Flegal Frequirements, Fhowever, Fa
Flarge Flisted Fcorporation Frecognizes F that F it F must F maintain Finvestor Fconfidence Fin F the Freliability Fof F its
F financial Fstatements F and F internal F control F over F financial F reporting F if F it F is F to F continue F to F be F able F to
F secure F capital Ffrom Fthe Fpublic. F The Freport F by Fa F firm Fof F certified Fpublic Faccountants F adds F credibility
Fto Fthe Ffinancial Fstatements F prepared Fby Fthe Fcorporation. F When Fa F small Ffamily-owned Fenterprise
Felects F to Fhave Fan Faudit, Fthe Fpurpose Fusually Fis F to Fuse Fthe Fauditors' Freport F to Fsupport F an Fapplication
F for F a Fbank Floan.
, 1-5 A Freport F by Fan Findependent F public Faccountant F concerning Fthe Ffairness F of Fa F company's F financial
FstatementsF is Fcommonly Frequired Fin Fthe Ffollowing Fsituations:
(1) Application Ffor F a F bank Floan.
(2) Establishing Fcredit F for F purchase Fof F merchandise, Fequipment, For F other F assets.
(3) Reporting Foperating Fresults, F financial Fposition, F and Fcash Fflows F to Fabsentee Fowners
F (stockholdersF or Fpartners).
(4) Issuance Fof F securities F by Fa Fcorporation.
(5) Annual Ffinancial Fstatements F by Fa F corporation Fwith Fsecurities F listed Fon Fa F stock Fexchange For
F tradedFover Fthe Fcounter.
(6) Sale Fof F an Fongoing Fbusiness.
(7) Termination Fof F a F partnership.
1-6 To Fadd Fcredibility Fto Ffinancial Fstatements F is Fto Fincrease Fthe Flikelihood Fthat F they Fhave Fbeen Fprepared
Ffollowing Fthe Fappropriate Fcriteria, F usually Fgenerally Faccepted Faccounting Fprinciples. F As F such, F an
FincreaseFin Fcredibility Fresults F in Ffinancial Fstatements Fthat F can Fbe Fbelieved Fand Frelied Fupon Fby Fthird
Fparties.
1-7 Business F risk Fis F the Frisk Fthat F the Finvestment F will Fbe Fimpaired Fbecause Fa F company Finvested Fin Fis
F unable FtoFmeet F its F financial Fobligations F due Fto Feconomic Fconditions F or Fpoor Fmanagement F decisions.
F Information Frisk Fis Fthe Frisk Fthat Fthe Finformation Fused Fto Fassess Fbusiness Frisk Fis Fnot Faccurate.
FAuditors Fcan Fdirectly Freduce Finformation Frisk, Fbut Fhave Fonly Flimited Feffect Fon Fbusiness Frisk.
1-8 At Fthe Fbeginning Fof Fthe Fcentury, Fthe Fprincipal Fobjective Fof Fauditing Fwas F the Fprevention Fand Fdetection
Fof Ffraud. F Audit F work Fcentered Fon Fthe Fbalance Fsheet, Fbecause Fthe Fincome Fstatement F was F regarded Fas
F highly Fconfidential F and F not F for F public Fdisclosure. F Today, F the Fprincipal F objective Fof F auditing F is F to
F form Fan Fopinion Fon Fthe Ffairness F of F financial Fstatements F and Ftheir F conformity Fwith Fgenerally Faccepted
Faccounting Fprinciples. F But F the Fprofessional F standards F also F require Fthat F an F audit F be Fdesigned F to
Fprovide Freasonable Fassurance Fof F detecting F material F misstatements, F due Fto F errors F or F fraud. F Particular
F emphasis F is F placed F on Fthe Fincome Fstatement F which Fis F of F great F importance Fto Finvestors. F Auditing
Ftoday Falso Fhas F the Fobjectives F ofF meeting Fthe Frequirements F of Fthe FSecurities F and FExchange
FCommission F(SEC) F and Fthe FPublic FCompany FAccounting FOversight FBoard Ffor Fpublic Fcompanies.
1-9 The Fstatement F is F incorrect. FThe Fincreasing Fintegrated Fdatabases F of F today, Falong Fwith Favailable
FauditFprocedures Fmake Faudited Fentire Fpopulations Fa Fpossibility Fin Fmany Fsituations.
1-10 An Foperational Faudit F attempts F to Fmeasure Fthe Feffectiveness Fand Fefficiency Fof Fa Fspecific Funit F of Fan
Forganization. F It F involves F more Fsubjective Fjudgments F than Fa Fcompliance Faudit F or Fan Faudit F of
Ffinancial Fstatements F because Fthe Fcriteria F of F effectiveness F and Fefficiency Fof F departmental
Fperformance Fare Fnot F asF clearly Festablished Fas F are Fmany Flaws F and Fregulations For Fgenerally
Faccepted Faccounting Fprinciples.
The Freport F prepared Fafter F completion Fof F an Foperational Faudit F is F usually Fdirected Fto
FmanagementFof Fthe Forganization Fin Fwhich Fthe Faudit Fwork Fwas Fdone.
1-11 A Fcompliance Faudit Fis Fan Faudit Fto Fdetermine Fwhether Ffinancial Freports For Fother Fassertions Fare F in
Fcompliance Fwith Festablished Fcriteria. F The Fnecessary Fingredients F are Fverifiable Fdata F and Fthe Fexistence
Fof Fstandards F established Fby Fan Fauthoritative Fbody. F An Foperational Faudit, F on Fthe Fother F hand, F is F a
F review Fof F aF
department F or Fother Funit F of Fa Fbusiness F or Fgovernmental Forganization Fto Fmeasure Fthe
Feffectiveness F and Fefficiency Fof F operations. F Internal Fauditors F often Fperform Foperational Faudits F as F do
Fauditors F employed Fby Fthe FGovernment FAccountability FOffice F(GAO) Fof Fthe Ffederal Fgovernment.
1-12 Internal Fauditors F must F be Findependent F of Fthe Fdepartment F heads Fand Fother Fline Fexecutives F whose Fwork
