TEST BANK for Auditing: A Practical Approach with Data Analytics 2nd Edition by Laura Davis Wiley, Raymond N. Johnson and Robyn Moroney ISBN-. All Chapters 1-16

For Instructor Use Only
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,SOLUTION MANUAL FOR g g


AuditingAPracticalApproachwithDataAnalytics,2nd EditionRaymondN.Johnson,Laura g
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Davis Wiley, Robyn Moroney, Fiona Campbell,Jane Hamilton
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Chapter 1-16g



CHAPTER1 g



Introduction and Overview of Audit and Assurance g g g g g g



Learning Objectives
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1. Differentiate among assurance, attestation, and auditing services.
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2. Describe the different types of assurance services.
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3. Explain the demand for audit and assurance services.
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4. Discuss the different roles of the financial statement preparer and the auditor.
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5. Identify the roles of different regulators and organizations that affect the audit profession.
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6. Explain the concepts of reasonable assurance, materiality, and the nature of an unquali-
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fied/unmodified report on the audit of financial statements.
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7. Explain the concept of reasonable assurance and the nature of an unqualified report on
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internal controls over financial reporting.
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8. Discuss the audit expectation gap.
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ANSWERSTO MULTIPLE-CHOICEQUESTIONS g g g




1. C
LO g1, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPA gAC: gRiskHAssessment, gAnalysisHand gManagement, gSecti
on: gAssurance, gAttestation, gand gAudit gServices
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2. A
LO g2, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPA gAC: gRiskHAssessment, gAnalysisHand gManagement, gSecti
on: gDifferent gAssurance gServices
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3. B
LO g2, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPAHAC: gRiskHAssessment, gAnalysisHand gManagement, gSecti
on: gDifferent gAssurance gServices
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4. C
LO g2, gBT: gC, gDifficulty: gMedium, gTOT: g2 gmin., gAACSB: gNone, gAICPAHAC: gRiskHAssessment, gAnalysis gand gManagement,
S gection: gDifferentHAssurance gServices
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5. C
LO g3, gBT: gC, gDifficulty: gMedium, gTOT: g2 gmin., gAACSB: gNone, gAICPAHAC: gRiskHAssessment, gAnalysis gand gManagement,
S gection: gDemand gfor gAudit gand gAssurance gServices
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For Instructor Use Only
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,6. B
LO g4, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPA gAC: gRiskHAssessment, gAnalysisHand gManagement, gSecti
on: gPreparers gand gAuditors
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7. A
LO g5, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPAHAC: gReporting, gSection: gThe gRole gof gRegulators gand gR
egulations
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8. D
LO g5, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPAHBC: gGovernance gPerspective, gSection: gThe gRole gof gRe
gulators gand gRegulations
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9. D
LO g6, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPA gAC: gRiskHAssessment, gAnalysis gand gManagement, gSecti
on: gAuditHReportHon gFinancial gStatements
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10. C
LO g6, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPA gAC: gReporting, gSection: gAudit gReportHon gthe gFinancial
Statements
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11. B
LO g7, gBT: gC, gDifficulty: gEasy, gTOT: g2 gmin., gAACSB: gNone, gAICPAHAC: gReporting, gSection: gAuditHReportHon gInternal gCont
rolsHover gFinancial gReporting
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12. B
LO g8, gBT: gC, gDifficulty: gMedium, gTOT: g2 gmin., gAACSB: gNone, gAICPA gPC: gProfessional gBehavior, gSection: gThe gAudit
Expectation gGap
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ANSWERSTOREVIEWQUESTIONS g g g




R1.1 An assurance service is any service provided by an independent practitioner that im-
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proves the quality of information, or its context, for decision makers. An independent
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practitioner can verify that the information meets relevant criteria, which provides assurance to
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users who in tend to use the information for decision making. An assurance engagement has
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three parties: th e assurance provider (auditor/practitioner), the party responsible for providing
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the information (cl ient), and the intended users of the information (investors/lenders/others
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who rely on the in- formation).
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LO g1, gBT: gC, gDifficulty: gEasy, gTOT: g5 gmin., gAACSB: gNone, gAICPA gAC: gRiskHAssessment, gAnalysis gand gManagement, gSecti
on: gAssurance, gAttestation, gand gAudit gServices
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R1.2 The criterion used in a financial statement audit to measure and evaluate subject matter is
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the applicable financial reporting framework used by the client. The most common framework
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For Instructor Use Only
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, used in the U.S. is Generally Accepted Accounting Principles (GAAP).
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LO g1, gBT: gC, gDifficulty: gEasy, gTOT: g5 gmin., gAACSB: gNone, gAICPAHAC: gMeasurement gAnalysisHand gInterpretation, gSec-
tion: gAssurance, gAttestation, gand gAudit gServices
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R1.3 Financial statements are not guaranteed to be free from error or fraud due to several
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glimi- tations. These limitations include the nature of financial reporting, the nature of audit
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gprocedures and the need for the audit to be conducted within a reasonable period of time and
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gwithin a rea- sonable budget. The nature of financial reporting causes limitations because it
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gincludes man- agement‘s judgment when applying accounting standards and estimates. The
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gnature of the au- dit procedures is a limitation because the auditors have to rely on
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gmanagement to provide all th e necessary documentation needed for the audit. The auditor
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gmay arrive at an inappropriate con
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- clusion if information is tampered with or excluded. The last limitation refers to the limited re-
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gsources of time and money for an audit engagement. It would be impractical for auditors to ex-
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gamine every transaction. Therefore, auditors rely on sampling measures to provide an
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gaccurate representation of the population, and sampling cannot provide absolute assurance.
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LO g2, gBT: gC, gDifficulty: gMedium, gTOT: g15 gmin., gAACSB: gNone, gAICPA gAC: gRisk gAssessment, gAnalysis gand gManagement,
Section: gDifferent gAssurance gServices
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R1.4 Management and those charged with governance can request an operational audit to help
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improve the efficiency and effectiveness of a company‘s operations. An organization‘s internal
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a udit department typically conducts operational audits.
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LO g2, gBT: gC, gDifficulty: gEasy, gTOT: g5 gmin., gAACSB: gNone, gAICPAHBC: gGovernance gPerspective, gSection: gDifferent gAs-
surance gServices
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R1.5 Investors are interested in the information that financial statements can provide about their
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investment. This includes, but is not limited to, information regarding the profitability of the com-
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gpany, return on investment, going concern/continuity of operations, and dividend distributions.
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gAn independent audit helps to ensure that the information in the financial statements is credible
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gand of high quality.
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LO g3, gBT: gC, gDifficulty: gEasy, gTOT: g10 gmin., gAACSB: gNone, gAICPA gBC: gGovernance gPerspective, gSection: gDemand gfor gA
udit gand gAssurance gServices
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R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financial
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gstatements. Management (the preparer) is in charge of preparing the financial statements. This
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i ncludes ensuring the information is presented fairly and in compliance with GAAP, or other
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gap- plicable financial reporting framework. Management is responsible for designing,
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gimplementing, and maintaining internal control over financial reporting, as well as providing
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gauditors with all th e necessary documentation and personnel needed to complete the audit.
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gAuditors are responsib le for providing an opinion on whether the financial statements are
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gpresented fairly and in accord g g g g


-
ance with the applicable financial reporting framework. The three responsibilities of auditors
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gare to conduct the audit in accordance with the appropriate audit standards, plan and perform
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For Instructor Use Only
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