Chapter 17 - Completing the Audit Engagement
Solution Manual For
Auditing & Assurance Services A Systematic Approach 12e Messier
Chapter 1-21
17-1
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
Table of Contents
PART 1: Introduction to Assurance andFinancial Statement Auditing
Chapter 1: An Introduction to Assurance and FinancialStatement Auditing
Chapter 2: The Financial Statement Auditing Environment
PART 2: Audit Planning and Basic Auditing Concepts
Chapter 3: Audit Planning, Types of Audit Tests, andMateriality
Chapter 4: Risk Assessment
Chapter 5: Evidence and Documentation
PART 3: Understanding and Auditing Internal Control
Chapter 6: Internal Control in a Financial Statement Audit
Chapter 7: Auditing Internal Control over FinancialReporting
PART 4: Statistical and Nonstatistical Sampling Toolsfor Auditing
Chapter 8: Audit Sampling: An Overview and Application toTests of Controls
Chapter 9: Audit Sampling: An Application to SubstantiveTests of Account Balances
PART 5: Auditing Business Processes
Chapter 10: Auditing the Revenue Process
Chapter 11: Auditing the Purchasing Process
Chapter 12: Auditing the Human Resource Management Process
Chapter 13: Auditing the Inventory Management Process
Chapter 14: Auditing the Financing/Investing Process:Prepaid Expenses, Intangible Assets,
and Property, Plant, and Equipment
Chapter 15: Auditing the Financing/Investing Process:Long-Term Liabilities, Stockholders’
Equity, and Income Statement Accounts
Chapter 16: Auditing the Financing/Investing Process: Cashand Investments
PART 6: Completing the Audit and ReportingResponsibilities
17-2
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
Chapter 17: Completing the Audit Engagement
Chapter 18: Reports on Audited Financial Statements
PART 7: Professional Responsibilities
Chapter 19: Professional Conduct, Independence, and QualityManagement
Chapter 20: Legal Liability
PART 8: Assurance, Attestation, and Internal AuditingServices
Chapter 21: Assurance, Attestation, and Internal AuditingServices
17-3
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
CHAPTER 1
AN INTRODUCTION TO ASSURANCE AND FINANCIAL
STATEMENT AUDITING
Answers to Review Questions
1-1 The study of auditing is more conceptual in nature as compared to other accounting
courses. Rather than focusing on learning the rules, techniques, and computations required
to prepare financial statements, auditing emphasizes learning a framework of analytical
and logical skills. This framework enables auditors to evaluate the relevance and
reliability of the systems and processes responsible for financial information as well as the
information itself. To be successful, students must learn the framework and then learn to
use logic and common sense in applying auditing concepts to various circumstances and
situations. Understanding auditing can improve the decision-making ability of consultants,
business managers, and accountants by providing a framework for evaluating the
usefulness and reliability of information—an important task in many different business
contexts.
1-2 There is a demand for auditing in a free-market economy because the agency relationship
between an absentee owner and a manager produces a natural conflict of interest due to
the information asymmetry that exists between these two parties. As a result, the agent
agrees to be monitored as part of his/her employment contract. Auditing appears to be a
cost-effective form of monitoring. The empirical evidence suggests that auditing was
demanded prior to government regulation. In 1926, before it was required by law,
independent auditors audited 82 percent of the companies on the New York Stock
Exchange. Additionally, many private companies and municipalities not subject to
government regulations, such as the Securities Act of 1933 and Securities Exchange Act
of 1934, also purchase various forms of auditing and assurance services. Many private
companies seek out financial statement audits in order to secure financing for their
operations. Companies preparing to go public also benefit from having an audit.
1-3 The agency relationship between an owner and manager produces a natural conflict of
interest because of differences in the two parties’ goals and because of the information
asymmetry that exists between them. That is, the manager likely has different goals than
the owner, and generally has more information about the "true" financial position and
results of operations of the entity than the absentee owner does. If both parties seek to
maximize their own self-interest, the manager may not act in the best interest of the owner
and may manipulate the information provided to the owner accordingly.
17-4
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
Solution Manual For
Auditing & Assurance Services A Systematic Approach 12e Messier
Chapter 1-21
17-1
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
Table of Contents
PART 1: Introduction to Assurance andFinancial Statement Auditing
Chapter 1: An Introduction to Assurance and FinancialStatement Auditing
Chapter 2: The Financial Statement Auditing Environment
PART 2: Audit Planning and Basic Auditing Concepts
Chapter 3: Audit Planning, Types of Audit Tests, andMateriality
Chapter 4: Risk Assessment
Chapter 5: Evidence and Documentation
PART 3: Understanding and Auditing Internal Control
Chapter 6: Internal Control in a Financial Statement Audit
Chapter 7: Auditing Internal Control over FinancialReporting
PART 4: Statistical and Nonstatistical Sampling Toolsfor Auditing
Chapter 8: Audit Sampling: An Overview and Application toTests of Controls
Chapter 9: Audit Sampling: An Application to SubstantiveTests of Account Balances
PART 5: Auditing Business Processes
Chapter 10: Auditing the Revenue Process
Chapter 11: Auditing the Purchasing Process
Chapter 12: Auditing the Human Resource Management Process
Chapter 13: Auditing the Inventory Management Process
Chapter 14: Auditing the Financing/Investing Process:Prepaid Expenses, Intangible Assets,
and Property, Plant, and Equipment
Chapter 15: Auditing the Financing/Investing Process:Long-Term Liabilities, Stockholders’
Equity, and Income Statement Accounts
Chapter 16: Auditing the Financing/Investing Process: Cashand Investments
PART 6: Completing the Audit and ReportingResponsibilities
17-2
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
Chapter 17: Completing the Audit Engagement
Chapter 18: Reports on Audited Financial Statements
PART 7: Professional Responsibilities
Chapter 19: Professional Conduct, Independence, and QualityManagement
Chapter 20: Legal Liability
PART 8: Assurance, Attestation, and Internal AuditingServices
Chapter 21: Assurance, Attestation, and Internal AuditingServices
17-3
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
, Chapter 17 - Completing the Audit Engagement
CHAPTER 1
AN INTRODUCTION TO ASSURANCE AND FINANCIAL
STATEMENT AUDITING
Answers to Review Questions
1-1 The study of auditing is more conceptual in nature as compared to other accounting
courses. Rather than focusing on learning the rules, techniques, and computations required
to prepare financial statements, auditing emphasizes learning a framework of analytical
and logical skills. This framework enables auditors to evaluate the relevance and
reliability of the systems and processes responsible for financial information as well as the
information itself. To be successful, students must learn the framework and then learn to
use logic and common sense in applying auditing concepts to various circumstances and
situations. Understanding auditing can improve the decision-making ability of consultants,
business managers, and accountants by providing a framework for evaluating the
usefulness and reliability of information—an important task in many different business
contexts.
1-2 There is a demand for auditing in a free-market economy because the agency relationship
between an absentee owner and a manager produces a natural conflict of interest due to
the information asymmetry that exists between these two parties. As a result, the agent
agrees to be monitored as part of his/her employment contract. Auditing appears to be a
cost-effective form of monitoring. The empirical evidence suggests that auditing was
demanded prior to government regulation. In 1926, before it was required by law,
independent auditors audited 82 percent of the companies on the New York Stock
Exchange. Additionally, many private companies and municipalities not subject to
government regulations, such as the Securities Act of 1933 and Securities Exchange Act
of 1934, also purchase various forms of auditing and assurance services. Many private
companies seek out financial statement audits in order to secure financing for their
operations. Companies preparing to go public also benefit from having an audit.
1-3 The agency relationship between an owner and manager produces a natural conflict of
interest because of differences in the two parties’ goals and because of the information
asymmetry that exists between them. That is, the manager likely has different goals than
the owner, and generally has more information about the "true" financial position and
results of operations of the entity than the absentee owner does. If both parties seek to
maximize their own self-interest, the manager may not act in the best interest of the owner
and may manipulate the information provided to the owner accordingly.
17-4
Copyright ©2022 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill Education.
