Solution Manual For Principles Of
Auditing & Other Assurance Services
23rd Edition By Ray Whittington
Page | 1
, Table Of Contents
Chapter 1: The Role Of The Public Accountant In The American Economy
Chapter 2: Professional Standards
Chapter 3 : Professional Ethics
Chapter 4: Legal Liability Of Cpa
Chapter 5 : Audit Evidence And Documentation
Chapter 6: Audit Planning, Understanding The Client, Assessing Risks And Responding
Chapter 7 : Internal Control
Chapter 8: Consideration Of Internal Control In An It Environment
Chapter 9 : Audit Sampling
Chapter 10: Cash And Financial Investments
Chapter 11: Accounts Receivable, Notes Receivable, And Revenue
Chapter 12: Inventories And Cost Of Goods Sold
Chapter 13: Property, Plant, And Equipment: Depreciation And Depletion
Chapter 14: Accounts Payable And Other Liabilities
Chapter 15: Debt And Equity Capital
Chapter 16 : Auditing Operations And Completing The Audit
Chapter 17 : Auditors' Reports
Chapter 18 : Integrated Audits Of Issuers (Public Companies)
Chapter 19: Additional Assurance Services: Historical Financial Information
Chapter 20: Additional Assurance Services: Other Information
Chapter 21: Internal, Operational And Compliance Auditing
Page | 2
, Chapter 1: The Role Of The Public Accountant In The American Economy
Review Questions
1-1 The Crisis Of Credibility Largely Arose From The Number Of Companies That Restated Their
Previously Issued Financial Statements As A Result Of Accounting Irregularities And Fraud. Especially
Responsible Were The Very Visible Enron And Worldcom Fraud Cases. Both Companies Filed For
Bankruptcy And Constituted The Largest Companies In American History To Do So. The Extent Of The
Accounting Irregularities And Fraud Being Investigated And Disclosed Brought Into Question The
Effectiveness Of Financial Statement Audits. In Addition, The Criminal Conviction Of Arthur Andersen,
Llp, One Of The Then Big 5 Accounting Firms, On Charges Of Destroying Documents Related To The
Enron Case Brought Into Question The Ethics Standards Of The Profession.
1-2 Assurance Services Are Professional Services That Enhance The Quality Of Information, Or Its
Context, For Decision-Making. The Two Types Are: (A) Those That Increase The Reliability Of
Information And
(B) Those That Involve Putting Information In A Form Or Context That Facilitates Decision-Making.
1-3 A Financial Statement Audit Is, By Far, The Most Common Type Of Attest Engagement. The
Overall Assertion, Made By Management, Most Frequently Is That The Financial Statements Follow
Generally Accepted Accounting Principles.
1-4 A Large Corporation With Securities Listed On A Stock Exchange Is Required By The Rules Of
The Stock Exchange And By The Rules Of The Securities And Exchange Commission To Provide An
Audit Report With The Annual Financial Statements Furnished To Its Stockholders. It Also Is Required
To Engage The Auditors To Provide An Opinion On Its Internal Control. Apart From Legal
Requirements, However, A Large Listed Corporation Recognizes That It Must Maintain Investor
Confidence In The Reliability Of Its Financial Statements And Internal Control Over Financial Reporting
If It Is To Continue To Be Able To Secure Capital From The Public. The Report By A Firm Of Certified
Public Accountants Adds Credibility To The Financial
Statements Prepared By The Corporation. When A Small Family-Owned Enterprise Elects To Have An
Audit, The Purpose Usually Is To Use The Auditors' Report To Support An Application For A Bank
Loan.
1-5 A Report By An Independent Public Accountant Concerning The Fairness Of A Company's
Financial Statements Is Commonly Required In The Following Situations:
(1) Application For A Bank Loan.
Page | 3
, (2) Establishing Credit For Purchase Of Merchandise, Equipment, Or Other Assets.
(3) Reporting Operating Results, Financial Position, And Cash Flows To Absentee Owners
(Stockholders Or Partners).
(4) Issuance Of Securities By A Corporation.
(5) Annual Financial Statements By A Corporation With Securities Listed On A Stock Exchange Or
Traded Over The Counter.
(6) Sale Of An Ongoing Business.
(7) Termination Of A Partnership.
1-6 To Add Credibility To Financial Statements Is To Increase The Likelihood That They Have Been
Prepared Following The Appropriate Criteria, Usually Generally Accepted Accounting Principles. As
Such, An Increase In Credibility Results In Financial Statements That Can Be Believed And Relied Upon
By Third Parties.
1-7 Business Risk Is The Risk That The Investment Will Be Impaired Because A Company
Invested In Is Unable To Meet Its Financial Obligations Due To Economic Conditions Or Poor
Management Decisions.
Information Risk Is The Risk That The Information Used To Assess Business Risk Is Not Accurate. Auditors
Can Directly Reduce Information Risk, But Have Only Limited Effect On Business Risk.
1-8 At The Beginning Of The Century, The Principal Objective Of Auditing Was The Prevention
And Detection Of Fraud. Audit Work Centered On The Balance Sheet, Because The Income Statement
Was Regarded As Highly Confidential And Not For Public Disclosure. Today, The Principal Objective
Of Auditing Is To Form An Opinion On The Fairness Of Financial Statements And Their Conformity
With Generally Accepted Accounting Principles. But The Professional Standards Also Require That An
Audit Be Designed To Provide Reasonable Assurance Of Detecting Material Misstatements, Due To
Errors Or Fraud. Particular Emphasis Is Placed On The Income Statement Which Is Of Great
Importance To Investors. Auditing Today Also Has The Objectives Of Meeting The Requirements Of
The Securities And Exchange Commission (Sec) And The Public Company Accounting Oversight Board
For Public Companies.
1-9 The Statement Is Incorrect. The Increasing Integrated Databases Of Today, Along With
Available Audit Procedures Make Audited Entire Populations A Possibility In Many Situations.
1-10 An Operational Audit Attempts To Measure The Effectiveness And Efficiency Of A Specific
Unit Of An Organization. It Involves More Subjective Judgments Than A Compliance Audit Or An
Page | 4
Auditing & Other Assurance Services
23rd Edition By Ray Whittington
Page | 1
, Table Of Contents
Chapter 1: The Role Of The Public Accountant In The American Economy
Chapter 2: Professional Standards
Chapter 3 : Professional Ethics
Chapter 4: Legal Liability Of Cpa
Chapter 5 : Audit Evidence And Documentation
Chapter 6: Audit Planning, Understanding The Client, Assessing Risks And Responding
Chapter 7 : Internal Control
Chapter 8: Consideration Of Internal Control In An It Environment
Chapter 9 : Audit Sampling
Chapter 10: Cash And Financial Investments
Chapter 11: Accounts Receivable, Notes Receivable, And Revenue
Chapter 12: Inventories And Cost Of Goods Sold
Chapter 13: Property, Plant, And Equipment: Depreciation And Depletion
Chapter 14: Accounts Payable And Other Liabilities
Chapter 15: Debt And Equity Capital
Chapter 16 : Auditing Operations And Completing The Audit
Chapter 17 : Auditors' Reports
Chapter 18 : Integrated Audits Of Issuers (Public Companies)
Chapter 19: Additional Assurance Services: Historical Financial Information
Chapter 20: Additional Assurance Services: Other Information
Chapter 21: Internal, Operational And Compliance Auditing
Page | 2
, Chapter 1: The Role Of The Public Accountant In The American Economy
Review Questions
1-1 The Crisis Of Credibility Largely Arose From The Number Of Companies That Restated Their
Previously Issued Financial Statements As A Result Of Accounting Irregularities And Fraud. Especially
Responsible Were The Very Visible Enron And Worldcom Fraud Cases. Both Companies Filed For
Bankruptcy And Constituted The Largest Companies In American History To Do So. The Extent Of The
Accounting Irregularities And Fraud Being Investigated And Disclosed Brought Into Question The
Effectiveness Of Financial Statement Audits. In Addition, The Criminal Conviction Of Arthur Andersen,
Llp, One Of The Then Big 5 Accounting Firms, On Charges Of Destroying Documents Related To The
Enron Case Brought Into Question The Ethics Standards Of The Profession.
1-2 Assurance Services Are Professional Services That Enhance The Quality Of Information, Or Its
Context, For Decision-Making. The Two Types Are: (A) Those That Increase The Reliability Of
Information And
(B) Those That Involve Putting Information In A Form Or Context That Facilitates Decision-Making.
1-3 A Financial Statement Audit Is, By Far, The Most Common Type Of Attest Engagement. The
Overall Assertion, Made By Management, Most Frequently Is That The Financial Statements Follow
Generally Accepted Accounting Principles.
1-4 A Large Corporation With Securities Listed On A Stock Exchange Is Required By The Rules Of
The Stock Exchange And By The Rules Of The Securities And Exchange Commission To Provide An
Audit Report With The Annual Financial Statements Furnished To Its Stockholders. It Also Is Required
To Engage The Auditors To Provide An Opinion On Its Internal Control. Apart From Legal
Requirements, However, A Large Listed Corporation Recognizes That It Must Maintain Investor
Confidence In The Reliability Of Its Financial Statements And Internal Control Over Financial Reporting
If It Is To Continue To Be Able To Secure Capital From The Public. The Report By A Firm Of Certified
Public Accountants Adds Credibility To The Financial
Statements Prepared By The Corporation. When A Small Family-Owned Enterprise Elects To Have An
Audit, The Purpose Usually Is To Use The Auditors' Report To Support An Application For A Bank
Loan.
1-5 A Report By An Independent Public Accountant Concerning The Fairness Of A Company's
Financial Statements Is Commonly Required In The Following Situations:
(1) Application For A Bank Loan.
Page | 3
, (2) Establishing Credit For Purchase Of Merchandise, Equipment, Or Other Assets.
(3) Reporting Operating Results, Financial Position, And Cash Flows To Absentee Owners
(Stockholders Or Partners).
(4) Issuance Of Securities By A Corporation.
(5) Annual Financial Statements By A Corporation With Securities Listed On A Stock Exchange Or
Traded Over The Counter.
(6) Sale Of An Ongoing Business.
(7) Termination Of A Partnership.
1-6 To Add Credibility To Financial Statements Is To Increase The Likelihood That They Have Been
Prepared Following The Appropriate Criteria, Usually Generally Accepted Accounting Principles. As
Such, An Increase In Credibility Results In Financial Statements That Can Be Believed And Relied Upon
By Third Parties.
1-7 Business Risk Is The Risk That The Investment Will Be Impaired Because A Company
Invested In Is Unable To Meet Its Financial Obligations Due To Economic Conditions Or Poor
Management Decisions.
Information Risk Is The Risk That The Information Used To Assess Business Risk Is Not Accurate. Auditors
Can Directly Reduce Information Risk, But Have Only Limited Effect On Business Risk.
1-8 At The Beginning Of The Century, The Principal Objective Of Auditing Was The Prevention
And Detection Of Fraud. Audit Work Centered On The Balance Sheet, Because The Income Statement
Was Regarded As Highly Confidential And Not For Public Disclosure. Today, The Principal Objective
Of Auditing Is To Form An Opinion On The Fairness Of Financial Statements And Their Conformity
With Generally Accepted Accounting Principles. But The Professional Standards Also Require That An
Audit Be Designed To Provide Reasonable Assurance Of Detecting Material Misstatements, Due To
Errors Or Fraud. Particular Emphasis Is Placed On The Income Statement Which Is Of Great
Importance To Investors. Auditing Today Also Has The Objectives Of Meeting The Requirements Of
The Securities And Exchange Commission (Sec) And The Public Company Accounting Oversight Board
For Public Companies.
1-9 The Statement Is Incorrect. The Increasing Integrated Databases Of Today, Along With
Available Audit Procedures Make Audited Entire Populations A Possibility In Many Situations.
1-10 An Operational Audit Attempts To Measure The Effectiveness And Efficiency Of A Specific
Unit Of An Organization. It Involves More Subjective Judgments Than A Compliance Audit Or An
Page | 4
