Solution Manual for Principles of Auditing and Other Assurance Services, 23rd Edition 2024, by Ray Whittington, Kurt Pany, All Chapters 1 - 21, Complete Newest Version

SOLUTION MANUAL FOR
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t3 Principles Of Auditing And Other Assurance Services
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23rd Edition By Ray Whittington Kurt
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ALL Chapters (1 - 21)
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,  Table of Contents t3 t3




Chapter 1: The Role of the Public Accountant in the AmericanEconomy
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Chapter 2: Professional Standards
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Chapter 3: Professional Ethics
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Chapter 4: Legal Liability of CPAs
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Chapter 5: Audit Evidence and Documentation
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Chapter 6: Audit Planning, Understanding the Client, AssessingRisks, and Responding
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Chapter 7: Internal Control
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Chapter 8: Consideration of Internal Control in an InformationTechnology Environment
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Chapter 9: Audit Sampling
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Chapter 10: Cash and Financial Investments
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Chapter 11: Accounts Receivable, Notes Receivable, andRevenue
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Chapter 12: Inventories and Cost of Goods Sold
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Chapter 13: Property, Plant, and Equipment: Depreciation andDepletion
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Chapter 14: Accounts Payable and Other Liabilities
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Chapter 15: Debt and Equity Capital
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Chapter 16: Auditing Operations and Completing the Audit
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Chapter 17: Auditors’ Reports
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Chapter 18: Integrated Audits of Public Companies
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Chapter 19: Additional Assurance Services: Historical FinancialInformation
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Chapter 20: Additional Assurance Services: Other Information
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Chapter 21: Internal, Operational, and Compliance Auditing
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,CHAPTER 1 t3




The Role of the Publ t3 t3 t3 t3




ic Accountant in thet3 t3 t3




American Economy t3




Review Questions
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1-1 The ―crisis of credibility‖ largely arose from the number of companies that restated their previously issu
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ed financial statements as a result of accounting irregularities and fraud. Especially responsible wereth
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e very visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and constituted t
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he largest companies in American history to do so. The extent of the accounting irregularities and frau
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d being investigated and disclosed brought into question the effectiveness of financial statement audits.
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3In addition, the criminal conviction of Arthur Andersen, LLP, one of the then Big 5 accounting firms,
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on charges of destroying documents related to the Enron case brought into question the ethics standard
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s of the profession.
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1-2 Assurance services are professional services that enhance the quality of information, or its context, fo
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r decision-
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making. The two types are: (a) those that increase the reliability of information and (b) those that inv
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olve putting information in a form or context that facilitates decision-making.
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1-3 A financial statement audit is, by far, the most common type of attest engagement. The overall assertio
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n,made by management, most frequently is that the financial statements follow generally accepted accou
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nting principles. t3




1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock excha
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nge and by the rules of the Securities and Exchange Commission to provide an audit report with theann
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ual financial statements furnished to its stockholders. It also is required to engage the auditors to provid
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e an opinion on its internal control. Apart from legal requirements, however, a large listed corporation
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recognizes that it must maintain investor confidence in the reliability of its financial statements and inte
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rnal control over financial reporting if it is to continue to be able to secure capital from the public. Th
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e report by a firm of certified public accountants adds credibility to the financial statements prepared by
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3the corporation. When a small family-
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owned enterprise elects to have an audit, the purpose usually is to use the auditors' report to support an
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application for a bank loan. t3 t3 t3 t3

, 1-5 A report by an independent public accountant concerning the fairness of a company's financial stateme
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ntsis commonly required in the following situations:
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(1) Application for a bank loan. t3 t3 t3 t3


(2) Establishing credit for purchase of merchandise, equipment, or other assets.
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(3) Reporting operating results, financial position, and cash flows to absentee owners (stockholde
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rsor partners).
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(4) Issuance of securities by a corporation. t3 t3 t3 t3 t3


(5) Annual financial statements by a corporation with securities listed on a stock exchange or trad
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edover the counter.
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(6) Sale of an ongoing business.
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(7) Termination of a partnership. t3 t3 t3




1-6 To add credibility to financial statements is to increase the likelihood that they have been prepared follo
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wing the appropriate criteria, usually generally accepted accounting principles. As such, an increasein c
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redibility results in financial statements that can be believed and relied upon by third parties.
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1-7 Business risk is the risk that the investment will be impaired because a company invested in is unable
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tomeet its financial obligations due to economic conditions or poor management decisions. Informatio
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n risk is the risk that the information used to assess business risk is not accurate. Auditors can directl
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y reduce information risk, but have only limited effect on business risk.
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1-8 At the beginning of the century, the principal objective of auditing was the prevention and detection of f
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raud. Audit work centered on the balance sheet, because the income statement was regarded as highly c
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onfidential and not for public disclosure. Today, the principal objective of auditing is to form an opin
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ion on the fairness of financial statements and their conformity with generally accepted accounting prin
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ciples. But the professional standards also require that an audit be designed to provide reasonable assur
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ance of detecting material misstatements, due to errors or fraud. Particular emphasis is placed on the
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income statement which is of great importance to investors. Auditing today also has the objectives ofm
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eeting the requirements of the Securities and Exchange Commission (SEC) and the Public Company A
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ccounting Oversight Board for public companies. t3 t3 t3 t3 t3




1-9 The statement is incorrect. The increasing integrated databases of today, along with available au
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ditprocedures make audited entire populations a possibility in many situations.
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1-10 An operational audit attempts to measure the effectiveness and efficiency of a specific unit of an or
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ganization. It involves more subjective judgments than a compliance audit or an audit of financial s
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tatements because the criteria of effectiveness and efficiency of departmental performance are not a
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sclearly established as are many laws and regulations or generally accepted accounting principles.
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The report prepared after completion of an operational audit is usually directed to managemen
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tof the organization in which the audit work was done.
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1-11 A compliance audit is an audit to determine whether financial reports or other assertions are in compli
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ance with established criteria. The necessary ingredients are verifiable data and the existence of standa
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rds established by an authoritative body. An operational audit, on the other hand, is a review of adep
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artment or other unit of a business or governmental organization to measure the effectiveness and effi
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ciency of operations. Internal auditors often perform operational audits as do auditors employed by th
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e Government Accountability Office (GAO) of the federal government.
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1-12 Internal auditors must be independent of the department heads and other line executives whose work th
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eyreview. However, internal auditors are not independent in the same sense as a public accounting firm.
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