TEST BANK Auditing: A Practical Approach with Data Analytics 2nd Edition by Laura Davis Wiley, Johnson and Moroney All Chapters 1-16 Complete Newest Edition Instant Download PDF

SOLUTION MANUAL FOR A A




Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson, Laura
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Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
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Chapter 1-16 A




CHAPTER 1 A




Introduction and Overview of Audit and Assurance A A A A A A




Learning Objectives A




1. Differentiate among assurance, attestation, and auditing services. A A A A A A




2. Describe the different types of assurance services. A A A A A A




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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Afied/unmodified report on the audit of financial statements. A A A A A A A




7. Explain the concept of reasonable assurance and the nature of an unqualified report on inter
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nal controls over financial reporting.
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8. Discuss the audit expectation gap. A A A A




ANSWERS TO MULTIPLE-CHOICE QUESTIONS A A A




1. C
LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section: Ass
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urance, Attestation, and Audit Services
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2. A
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section: Dif
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ferent Assurance Services
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3. B
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section: Dif
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ferent Assurance Services
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4. C
LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section:
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Different Assurance Services A A




5. C
LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section:
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Demand for Audit and Assurance Services
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,6. B
LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section: Pre
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parers and Auditors A A




7. A
LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and Regulatio
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ns


8. D
LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA BC: Governance Perspective, Section: The Role of Regulators
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and Regulations A




9. D
LO 6, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section: Au
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dit Report on Financial Statements
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10. C
LO 6, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: Audit Report on the Financial Stateme
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nts


11. B
LO 7, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA AC: Reporting, Section: Audit Report on Internal Controls ove
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r Financial Reporting
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12. B
LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: None, AICPA PC: Professional Behavior, Section: The Audit Expectation
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Gap

ANSWERS TO REVIEW QUESTIONS A A A




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 practitioner can
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verify that the information meets relevant criteria, which provides assurance to users who intend to us
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e the information for decision making. An assurance engagement has three parties: the assurance pr
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ovider (auditor/practitioner), the party responsible for providing the information (client), and the inten
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ded users of the information (investors/lenders/others who rely on the in- formation).
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LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Section: Ass
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urance, Attestation, and Audit Services A A A A




R1.2 The criterion used in a financial statement audit to measure and evaluate subject matter is the a
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pplicable financial reporting framework used by the client. The most common framework
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,used in the U.S. is Generally Accepted Accounting Principles (GAAP).
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LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA AC: Measurement Analysis and Interpretation, Sec-
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A tion: Assurance, Attestation, and Audit Services
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R1.3 Financial statements are not guaranteed to be free from error or fraud due to several limi-
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tations. These limitations include the nature of financial reporting, the nature of audit procedures and
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the need for the audit to be conducted within a reasonable period of time and within a rea-
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sonable budget. The nature of financial reporting causes limitations because it includes man-
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agement‘s judgment when applying accounting standards and estimates. The nature of the au-
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dit procedures is a limitation because the auditors have to rely on management to provide all the nece
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ssary documentation needed for the audit. The auditor may 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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sources of time and money for an audit engagement. It would be impractical for auditors to ex-
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amine every transaction. Therefore, auditors rely on sampling measures to provide an accurate repr
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esentation of the population, and sampling cannot provide absolute assurance.A A A A A A A A A




LO 2, BT: C, Difficulty: Medium, TOT: 15 min., AACSB: None, AICPA AC: Risk Assessment, Analysis and Management, Sectio
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n: Different Assurance Services
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R1.4 Management and those charged with governance can request an operational audit to help impr
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ove the efficiency and effectiveness of a company‘s operations. An organization‘s internal audit depa
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rtment typically conducts operational audits.A A A A




LO 2, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: None, AICPA BC: Governance Perspective, Section: Different As-
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A surance Services A




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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Apany, return on investment, going concern/continuity of operations, and dividend distributions. An in
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dependent audit helps to ensure that the information in the financial statements is credible and of hig
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h quality.
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LO 3, BT: C, Difficulty: Easy, TOT: 10 min., AACSB: None, AICPA BC: Governance Perspective, Section: Demand for Audit and
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A Assurance Services A




R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financial state
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ments. Management (the preparer) is in charge of preparing the financial statements. This includes e
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nsuring the information is presented fairly and in compliance with GAAP, or other ap-
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plicable financial reporting framework. Management is responsible for designing, implementing, an
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d maintaining internal control over financial reporting, as well as providing auditors with all the necess
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ary documentation and personnel needed to complete the audit. Auditors are responsible for providin
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g an opinion on whether the financial statements are presented fairly and in accord-
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ance with the applicable financial reporting framework. The three responsibilities of auditors are to c
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onduct the audit in accordance with the appropriate audit standards, plan and perform the audit with p
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rofessional skepticism, and exercise professional judgment. A A A A A




LO 4, BT: C, Difficulty: Medium, TOT: 15 min., AACSB: None, AICPA AC: Reporting, Section: Preparers and Auditors
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, R1.7 The SOX Act of 2002, which emphasized a need for better governance over financial re-
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porting, created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a non-
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profit corporation established to oversee the audits of public companies. The U.S. Securi-
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ties and Exchange Commission (SEC) is a federal government agency whose role is to enforce and i
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nterpret securities laws. The SEC approves each new auditing standard established by the PCAOB
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before it can be implemented. The SEC and PCAOB work closely together to ensure standards are i
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n place for both public companies and auditors to safeguard investors.
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LO 5, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and Regul
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ations


R1.8 Some functions of the state boards of accountancy include issuing Certified Public Ac-
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countant (CPA) licenses, adopting and enforcing professional conduct rules for CPAs, enforcing con
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tinuing professional education requirements, and administering disciplinary actions. The Na-
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tional Association of State Boards of Accountancy (NASBA) is a professional organization that work
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s to unite the interests of the 55 jurisdictions of state boards with regulative and legislative bodies.
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LO 5, BT: AP, Difficulty: Easy, TOT: 10 min., AACSB: Analytic, AICPA PC: Professional Behavior, Section: The Role of Regulato
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rs and Regulations
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R1.9 The principles of Generally Accepted Audit Standards (GAAS) start with the purpose of an
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audit, which is to provide an opinion on whether a company‘s financial statements are presented fairl
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y and in accordance with GAAP. The next principle describes the premise upon which an audit is con
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ducted. This outlines management‘s responsibility to prepare the financial state-
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Aments in accordance with the applicable framework, manage and maintain internal controls over fina
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ncial reporting, and provide the auditor with access to all documentation relevant to conduct the audit
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. The next principle outlines the responsibilities of the auditor, which explicitly states auditors have to
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be competent, comply with auditing standards, maintain professional skepti-
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Acism and exercise professional judgment during an audit. While performing an audit, an auditor must
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obtain reasonable assurance that the financial statements are free from material mis-
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Astatement, but also recognize it is not an absolute assurance due to several limitations. The last princ
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iple states that auditors must report the results of the audit in a formalized written report.
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LO 5, BT: C, Difficulty: Easy, TOT: 10 min., AACSB: None, AICPA AC: Reporting, Section: The Role of Regulators and Regulati
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ons


R1.10 Audit reports for private and public companies are very similar in content. Both reports contai
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n the essential components: a title with the word ―independent,‖ an address to the share-
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holders/owners and board, identification of which financial statements were audited, an opinion on t
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he outcome, a description of the responsibilities of the parties involved, a description of the conduct
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of an audit, a signature with the firm‘s name and a date indicating the end of fieldwork. However, ther
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e are a few differences between the two. The title for an audit report of a public company includes the
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term ―registered‖ indicating the firm is registered with the PCAOB. Audit reports for public companie
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s state the auditor is required to be independent from the company in accordance with U.S. federal s
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ecurities laws and with regulations of the SEC and PCAOB. The report for a public company include
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s a paragraph referencing the audit of the firm‘s internal
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