SOLUTION MANUAL FOR x# x#
Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson,
x# x# x# x# x# x# x# x# x# x# x# x#
Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
x# x# x# x# x# x# x# x#
Chapter 1-16 x#
CHAPTER 1 x#
Introduction and Overview of Audit and Assurance x# x# x# x# x# x#
Learning Objectives x#
1. Differentiate among assurance, attestation, and auditing services.
x# x# x# x# x# x#
2. Describe the different types of assurance services.
x# x# x# x# x# x#
3. Explain the demand for audit and assurance services.
x# x# x# x# x# x# x#
4. Discuss the different roles of the financial statement preparer and the auditor.
x# x# x# x# x# x# x# x# x# x# x#
5. Identify the roles of different regulators and organizations that affect the audit profession.
x# x# x# x# x# x# x# x# x# x# x# x#
6. Explain the concepts of reasonable assurance, materiality, and the nature of an unqu
x# x# x# x# x# x# x# x# x# x# x# x#
ali- fied/unmodified report on the audit of financial statements.
x# x# x# x# x# x# x# x#
7. Explain the concept of reasonable assurance and the nature of an unqualified report
x# x# x# x# x# x# x# x# x# x# x# x# x
#on internal controls over financial reporting.
x# x# x# x# x#
8. Discuss the audit expectation gap.
x# x# x# x#
ANSWERS TO MULTIPLE-CHOICE QUESTIONS x# x# x#
1. C
LOx#1,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Assurance,x#Attestation,x#andx#Auditx#Services
2. A
LOx#2,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Differentx#Assurancex#Services
3. B
LOx#2,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Differentx#Assurancex#Services
4. C
LOx#2,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Manag
ement,x#Section:x#Differentx#Assurancex#Services
5. C
LOx#3,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Manag
1 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
,ement,x#Section:x#Demandx#forx#Auditx#andx#Assurancex#Services
2 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
,6. B
LOx#4,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Preparersx#andx#Auditors
7. A
LOx#5,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Reporting,x#Section:x#Thex#Rolex#ofx#Regulato
rsx#andx#Regulations
8. D
LOx#5,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#BC:x#Governancex#Perspective,x#Section:x#Thex#Ro
lex#ofx#Regulatorsx#andx#Regulations
9. D
LOx#6,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Auditx#Reportx#onx#Financialx#Statements
10. C
LOx#6,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Reporting,x#Section:x#Auditx#Reportx#onx#thex#
Financialx#Statements
11. B
LOx#7,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Reporting,x#Section:x#Auditx#Reportx#onx#Inte
rnalx#Controlsx#overx#Financialx#Reporting
12. B
LOx#8,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#PC:x#Professionalx#Behavior,x#Section:x#Thex#A
uditx#Expectationx#Gap
ANSWERS TO REVIEW QUESTIONS x# x# x#
R1.1 An assurance service is any service provided by an independent practitioner that im-
x# x# x# x# x# x# x# x# x# x# x# x# x#
proves the quality of information, or its context, for decision makers. An independent practiti
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
oner can verify that the information meets relevant criteria, which provides assurance to user
x# x# x# x# x# x# x# x# x# x# x# x# x#
s who intend to use the information for decision making. An assurance engagement has thre
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
e parties: the assurance provider (auditor/practitioner), the party responsible for providing the
x# x# x# x# x# x# x# x# x# x# x# x
information (client), and the intended users of the information (investors/lenders/others who r
# x# x# x# x# x# x# x# x# x# x# x#
ely on the in- formation).
x# x# x# x#
LOx#1,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#5x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Assurance,x#Attestation,x#andx#Auditx#Services
R1.2 The criterion used in a financial statement audit to measure and evaluate subject matt
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
er is the applicable financial reporting framework used by the client. The most common fram
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ework
3 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
, used in the U.S. is Generally Accepted Accounting Principles (GAAP).
x# x# x# x# x# x# x# x# x#
LOx#1,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#5x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Measurementx#Analysisx#andx#Interpretation,
x# Sec-x#tion:x#Assurance,x#Attestation,x#andx#Auditx#Services
R1.3 Financial statements are not guaranteed to be free from error or fraud due to several li
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
mi-
x#tations. These limitations include the nature of financial reporting, the nature of audit proced
x# x# x# x# x# x# x# x# x# x# x# x# x#
ures and the need for the audit to be conducted within a reasonable period of time and withi
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
n a rea-
x# x#
x#sonable budget. The nature of financial reporting causes limitations because it includes man
x# x# x# x# x# x# x# x# x# x# x# x#
-
x#agement‘s judgment when applying accounting standards and estimates. The nature of the
x# x# x# x# x# x# x# x# x# x# x# x#
au-
x#dit procedures is a limitation because the auditors have to rely on management to provide a
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ll the necessary documentation needed for the audit. The auditor may arrive at an inappropri
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ate con- x#
x#clusion if information is tampered with or excluded. The last limitation refers to the limited re
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
-
x#sources of time and money for an audit engagement. It would be impractical for auditors to
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ex-
x#amine every transaction. Therefore, auditors rely on sampling measures to provide an accur
x# x# x# x# x# x# x# x# x# x# x# x#
ate representation of the population, and sampling cannot provide absolute assurance.
x# x# x# x# x# x# x# x# x# x#
LOx#2,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#15x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Mana
gement,x#Section:x#Differentx#Assurancex#Services
R1.4 Management and those charged with governance can request an operational audit to h
x# x# x# x# x# x# x# x# x# x# x# x# x#
elp improve the efficiency and effectiveness of a company‘s operations. An organization‘s int
x# x# x# x# x# x# x# x# x# x# x# x#
ernal audit department typically conducts operational audits.
x# x# x# x# x# x#
LOx#2,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#5x#min.,x#AACSB:x#None,x#AICPAx#BC:x#Governancex#Perspective,x#Section:x#Differe
ntx#As-x#surancex#Services
R1.5 Investors are interested in the information that financial statements can provide about their
x# x# x# x# x# x# x# x# x# x# x# x# x#
investment. This includes, but is not limited to, information regarding the profitability of the c
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
om-
pany, return on investment, going concern/continuity of operations, and dividend distribution
x# x# x# x# x# x# x# x# x# x# x#
s. An independent audit helps to ensure that the information in the financial statements is cr
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
edible and of high quality.
x# x# x# x#
LOx#3,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#10x#min.,x#AACSB:x#None,x#AICPAx#BC:x#Governancex#Perspective,x#Section:x#Dema
ndx#forx#Auditx#andx#Assurancex#Services
R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financi
x# x# x# x# x# x# x# x# x# x# x# x#
al statements. Management (the preparer) is in charge of preparing the financial statements.
x# x# x# x# x# x# x# x# x# x# x# x# x#
This includes ensuring the information is presented fairly and in compliance with GAAP, or ot
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
her ap- x#
4 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson,
x# x# x# x# x# x# x# x# x# x# x# x#
Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
x# x# x# x# x# x# x# x#
Chapter 1-16 x#
CHAPTER 1 x#
Introduction and Overview of Audit and Assurance x# x# x# x# x# x#
Learning Objectives x#
1. Differentiate among assurance, attestation, and auditing services.
x# x# x# x# x# x#
2. Describe the different types of assurance services.
x# x# x# x# x# x#
3. Explain the demand for audit and assurance services.
x# x# x# x# x# x# x#
4. Discuss the different roles of the financial statement preparer and the auditor.
x# x# x# x# x# x# x# x# x# x# x#
5. Identify the roles of different regulators and organizations that affect the audit profession.
x# x# x# x# x# x# x# x# x# x# x# x#
6. Explain the concepts of reasonable assurance, materiality, and the nature of an unqu
x# x# x# x# x# x# x# x# x# x# x# x#
ali- fied/unmodified report on the audit of financial statements.
x# x# x# x# x# x# x# x#
7. Explain the concept of reasonable assurance and the nature of an unqualified report
x# x# x# x# x# x# x# x# x# x# x# x# x
#on internal controls over financial reporting.
x# x# x# x# x#
8. Discuss the audit expectation gap.
x# x# x# x#
ANSWERS TO MULTIPLE-CHOICE QUESTIONS x# x# x#
1. C
LOx#1,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Assurance,x#Attestation,x#andx#Auditx#Services
2. A
LOx#2,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Differentx#Assurancex#Services
3. B
LOx#2,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Differentx#Assurancex#Services
4. C
LOx#2,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Manag
ement,x#Section:x#Differentx#Assurancex#Services
5. C
LOx#3,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Manag
1 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
,ement,x#Section:x#Demandx#forx#Auditx#andx#Assurancex#Services
2 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
,6. B
LOx#4,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Preparersx#andx#Auditors
7. A
LOx#5,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Reporting,x#Section:x#Thex#Rolex#ofx#Regulato
rsx#andx#Regulations
8. D
LOx#5,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#BC:x#Governancex#Perspective,x#Section:x#Thex#Ro
lex#ofx#Regulatorsx#andx#Regulations
9. D
LOx#6,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Auditx#Reportx#onx#Financialx#Statements
10. C
LOx#6,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Reporting,x#Section:x#Auditx#Reportx#onx#thex#
Financialx#Statements
11. B
LOx#7,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Reporting,x#Section:x#Auditx#Reportx#onx#Inte
rnalx#Controlsx#overx#Financialx#Reporting
12. B
LOx#8,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#2x#min.,x#AACSB:x#None,x#AICPAx#PC:x#Professionalx#Behavior,x#Section:x#Thex#A
uditx#Expectationx#Gap
ANSWERS TO REVIEW QUESTIONS x# x# x#
R1.1 An assurance service is any service provided by an independent practitioner that im-
x# x# x# x# x# x# x# x# x# x# x# x# x#
proves the quality of information, or its context, for decision makers. An independent practiti
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
oner can verify that the information meets relevant criteria, which provides assurance to user
x# x# x# x# x# x# x# x# x# x# x# x# x#
s who intend to use the information for decision making. An assurance engagement has thre
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
e parties: the assurance provider (auditor/practitioner), the party responsible for providing the
x# x# x# x# x# x# x# x# x# x# x# x
information (client), and the intended users of the information (investors/lenders/others who r
# x# x# x# x# x# x# x# x# x# x# x#
ely on the in- formation).
x# x# x# x#
LOx#1,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#5x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Managem
ent,x#Section:x#Assurance,x#Attestation,x#andx#Auditx#Services
R1.2 The criterion used in a financial statement audit to measure and evaluate subject matt
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
er is the applicable financial reporting framework used by the client. The most common fram
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ework
3 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
, used in the U.S. is Generally Accepted Accounting Principles (GAAP).
x# x# x# x# x# x# x# x# x#
LOx#1,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#5x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Measurementx#Analysisx#andx#Interpretation,
x# Sec-x#tion:x#Assurance,x#Attestation,x#andx#Auditx#Services
R1.3 Financial statements are not guaranteed to be free from error or fraud due to several li
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
mi-
x#tations. These limitations include the nature of financial reporting, the nature of audit proced
x# x# x# x# x# x# x# x# x# x# x# x# x#
ures and the need for the audit to be conducted within a reasonable period of time and withi
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
n a rea-
x# x#
x#sonable budget. The nature of financial reporting causes limitations because it includes man
x# x# x# x# x# x# x# x# x# x# x# x#
-
x#agement‘s judgment when applying accounting standards and estimates. The nature of the
x# x# x# x# x# x# x# x# x# x# x# x#
au-
x#dit procedures is a limitation because the auditors have to rely on management to provide a
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ll the necessary documentation needed for the audit. The auditor may arrive at an inappropri
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ate con- x#
x#clusion if information is tampered with or excluded. The last limitation refers to the limited re
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
-
x#sources of time and money for an audit engagement. It would be impractical for auditors to
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
ex-
x#amine every transaction. Therefore, auditors rely on sampling measures to provide an accur
x# x# x# x# x# x# x# x# x# x# x# x#
ate representation of the population, and sampling cannot provide absolute assurance.
x# x# x# x# x# x# x# x# x# x#
LOx#2,x#BT:x#C,x#Difficulty:x#Medium,x#TOT:x#15x#min.,x#AACSB:x#None,x#AICPAx#AC:x#Riskx#Assessment,x#Analysisx#andx#Mana
gement,x#Section:x#Differentx#Assurancex#Services
R1.4 Management and those charged with governance can request an operational audit to h
x# x# x# x# x# x# x# x# x# x# x# x# x#
elp improve the efficiency and effectiveness of a company‘s operations. An organization‘s int
x# x# x# x# x# x# x# x# x# x# x# x#
ernal audit department typically conducts operational audits.
x# x# x# x# x# x#
LOx#2,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#5x#min.,x#AACSB:x#None,x#AICPAx#BC:x#Governancex#Perspective,x#Section:x#Differe
ntx#As-x#surancex#Services
R1.5 Investors are interested in the information that financial statements can provide about their
x# x# x# x# x# x# x# x# x# x# x# x# x#
investment. This includes, but is not limited to, information regarding the profitability of the c
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
om-
pany, return on investment, going concern/continuity of operations, and dividend distribution
x# x# x# x# x# x# x# x# x# x# x#
s. An independent audit helps to ensure that the information in the financial statements is cr
x# x# x# x# x# x# x# x# x# x# x# x# x# x# x#
edible and of high quality.
x# x# x# x#
LOx#3,x#BT:x#C,x#Difficulty:x#Easy,x#TOT:x#10x#min.,x#AACSB:x#None,x#AICPAx#BC:x#Governancex#Perspective,x#Section:x#Dema
ndx#forx#Auditx#andx#Assurancex#Services
R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financi
x# x# x# x# x# x# x# x# x# x# x# x#
al statements. Management (the preparer) is in charge of preparing the financial statements.
x# x# x# x# x# x# x# x# x# x# x# x# x#
This includes ensuring the information is presented fairly and in compliance with GAAP, or ot
x# x# x# x# x# x# x# x# x# x# x# x# x# x#
her ap- x#
4 | © 2022 John Wiley and Sons, Inc.
x# x# x# x# x# x# x# x# For Instructor Use Onl
x# x# x#
y
