Chapter 01 - Auditing and Assurance Services Chapter 01 - Auditing and Assurance Services
Solution Manual For Auditing & Assurance Services CHAPTER 01
Auditing and Assurance Services
9th Edition by Timothy Louwers, Penelope Bagley LEARNING OBJECTIVES
Review Multiple Exercises, Problems,
Checkpoints Choice and Simulations
1. Define information risk and explain how the 1, 2, 3 29, 31, 38 65*
financial statement auditing process helps to
reduce this risk, thereby reducing the cost of
capital for a company.
2. Define and contrast assurance, attestation, 4, 5, 6, 7, 8 23, 25, 28, 44, 60, 65*
and financial statement auditing services. 50
3. Describe and define the assertions that 9, 10, 11 36, 39, 40, 41, 45, 62, 63, 67, 68, 69
management makes about the recognition, 46, 47, 48, 49, 52,
measurement, presentation, and disclosure of 53, 54, 55, 57, 58,
the financial statements and explain why 59
auditors use them as a focal point of the audit.
4. Define professional skepticism and explain its 12 24, 37 61
key characteristics.
5. Describe the organization of public accounting 13, 14 30, 42, 56 72
firms and identify the various services that
they offer.
6. Describe the audits and auditors in 15, 16, 17, 18 26, 27, 32, 34, 35 64, 66
governmental, internal, and operational
auditing.
7. List and explain the requirements for 19, 20, 21, 22 33, 43, 51 70, 71
becoming a certified public accountant (CPA)
and other certifications available to an
accounting professional.
(*) Item relates to multiple learning objectives
,Chapter 01 - Auditing and Assurance Services Chapter 01 - Auditing and Assurance Services
SOLUTIONS FOR REVIEW CHECKPOINTS auditor‘s success depends upon his or her independent, objective, and competent assessment of the
information (e.g., the conformity of the financial statements with the appropriate reporting framework).
1.1 Business risk is the risk that an entity will fail to meet its business objectives. When assessing The independent auditor‘s role is to lend credibility to the information; hence, the outsider will likely seek
business risk, a professional must consider all possible threats to an entity‘s goals and objectives. Some his or her independent opinion about the financial statements.
illustrative examples include the risk that: 1) its existing customers will start buying products or services
from its primary competitors; 2) its product lines will become obsolete; 3) its taxes will increase; 4) key 1.6 An attestation engagement is ―an engagement in which a practitioner is engaged to issue or does issue a
government contracts will be lost; 5) key employees will leave the entity; and many other examples exist. written communication that expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party‖ (SSAE 10, AT 101.01). To attest means to lend credibility or to vouch for
1.2 To help minimize business risk and take advantage of other opportunities presented in today‘s competitive the truth or accuracy of the statements that one party makes to another. The attest function is a term often
business environment, decision makers such as chief executive officers (CEOs) demand timely, relevant, applied to the activities of independent CPAs when acting as auditors of financial statements.
and reliable information. There are at least four environmental conditions that increase demand for reliable
information. First, complexity which implies that events and transactions in today‘s global business 1.7 An assurance service engagement is one that improves the quality of information, or its context, for
environment can be complicated. Most investors do not have the level of expertise needed to properly decision makers. Thus, an attestation service engagement is one type of an assurance service. Another
account for complex transactions. Second is remoteness which implies that decision makers are often way of thinking about the issue is to remember that the financial statement audit engagement is one type of
separated from current and potential business relationships due to distance and time. For example, investors an attestation service. Please see exhibit 1.3 in the text which depicts the relationship among assurance,
may not be able to visit distant locations to check up on their investments. Third is time-sensitivity which attestation, and auditing engagements.
implies that in today‘s economic environment, investors and other users of financial statements need to
make decisions more rapidly than ever before. As a result, the ability to promptly obtain high-quality 1.8 According to the American Accounting Association, ―Auditing is a systematic process of objectively
information is essential. Fourth is a consequence which implies that decisions may very well involve obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the
significant investments. As a result, the consequences can be severe if information cannot be obtained degree of correspondence between the assertions and established criteria and communicating the results to
interested users.‖ In effect, auditors add reliability to the information that is provided to interested users.
1.3 Of all the different risks discussed in the chapter up to this point, information risk is the one that is most Of course, this definition is focused on an external reporting context. Students may also discuss how
likely to create the demand for independent and objective assurance services is information risk or the governmental and internal auditors operate as well.
probability that the information circulated by an entity will be false or misleading. Because the primary
source of information for investors and creditors is the company itself, an incentive exists for that In response to ―What do auditors do?‖ students can respond by stating that auditors (1) obtain and evaluate
company‘s management to make their business or service appear to be better than it actually may be, to put evidence about assertions made by management about economic actions and events, (2) ascertain the
their best foot forward. As a result, preparers and issuers of financial information (directors, managers, degree of correspondence between the assertions and the appropriate reporting framework, and (3) issue an
accountants, and other people employed in a business) might benefit by giving false, misleading, or overly audit report (opinion). Students can also respond more generally by stating that auditors essentially lend
optimistic information. This potential conflict of interest between information providers and users which credibility to the financial statements presented by management.
provides the underlying basis for the demand for reliable information.
1.9 Financial accounting refers to the process of recording, classifying, summarizing, and reporting about a
1.4 The four major elements of the broad definition of assurance services are company‘s assets, liabilities, capital, revenues, and expenses in the financial statements in accordance with
the applicable financial reporting framework (e.g., GAAP). In so doing, the management team is making
Independence. CPAs want to preserve their reputation and competitive advantage by always preserving several assertions about the financial statements. The financial accounting process is the responsibility of
integrity and objectivity when performing assurance services. the management team.
Professional services. Virtually all work performed by CPAs is defined as ―professional services‖ as long Financial statement auditing refers to the process whereby professional auditors gather evidence related to
as it involves some element of judgment based on education and experience. the assertions that management makes in the financial statements, evaluates the evidence and concludes on
the fairness of the financial statements in a report.
Improving the quality of information or its context. The emphasis is on ―information,‖ CPAs‘ traditional
area of expertise. CPAs can enhance quality by assuring users about the reliability and relevance of They differ because accountants produce the financial statements in accordance with the applicable
information, and these two features are closely related to the familiar credibility-lending products of financial reporting framework. After this is complete, financial statement auditors then perform procedures
attestation and audit services. ―Context‖ is relevance in a different light. For assurance services, improving to ascertain whether the financial statements have been prepared in accordance with the applicable financial
the context of information refers to improving its usefulness when targeted to particular decision makers in reporting framework.
the surroundings of particular decision problems.
1.10 The two major classifications of ASB assertions with several assertions in each classification are:
For decision makers. As the ―consumers‖ of assurance services, decision makers are the beneficiaries of the
assurance services. Decision makers may or may not be the ―client‖ that pays the fee and may or may not be Assertions About Classes of Transactions and Events, and Related Disclosures
one of the parties to an assertion or other information, but they personify the consumer focus of new and
different professional work. Occurrence assertion: The objective is to establish with evidence that transactions giving rise to assets,
liabilities, sales, and expenses occurred. Key questions include ―Did the recorded sales transactions really
1.5 An assurance services engagement is any assignment that improves the quality of information, or its occur?‖
context, for decision makers. Because information (e.g., financial statements) are prepared by managers of
an entity who have authority and responsibility for financial success or failure, an outsider may be skeptical Completeness assertion: The objective is to establish with evidence that all transactions of the period that
that the information truly is objective, free from bias, fully informative, and free from material error, should be are included in the financial statements (including footnotes). Completeness also refers to proper
intentional or inadvertent. The services of an independent auditor helps resolve those doubts because the inclusion in financial statements of all revenue, expense, and related disclosures. Key questions related to
, Chapter 01 - Auditing and Assurance Services Chapter 01 - Auditing and Assurance Services
completeness include ―Are the revenue and expense account balances complete?‖ and ―Were all the their assertions are more general and do allow auditors to use the more granular and specific ASB
transactions that should be included reflected properly in the footnote disclosures?‖ assertions when completing the audit. As a result, largely each of the firms auditing public companies with
international operations feature the ASB assertions to guide their auditing processes. Importantly, a student
Cutoff assertion: The objective is to establish with evidence that all transactions that properly belong in the of auditing will note that the ASB assertions are in direct alignment with the PCAOB assertions. This is
preceding or following accounting periods are excluded. And, that only those transactions that should be illustrated in the text in Exhibit 1.4
included in the financial statements are included. A key question related to the cutoff assertion includes
―Were all the transactions recorded in the right period?‖ 1.12 By having a belief that a potential conflict of interest always exists between the auditor and the
management team, auditors will be skeptical when completing the audit. Indeed, even though the vast
Accuracy assertion: The objective is to establish with evidence that transactions have been recorded at the majority of audits do not contain fraud, auditors have no choice but to consider the possibility of fraud on
correct amount. Key questions include ―Were the expenses recorded at the proper dollar amount?‖ every audit. Stated simply, errors and financial reporting frauds have happened in the past, and users of
financial statements and audit reports expect auditors to detect material misstatements if they exist.
Classification assertion: The objective is to establish with evidence that transactions were posted to the
correct accounts. Key questions include ―Was this expense recorded in the appropriate account?‖ Indeed, auditing firms have long recognized the importance of exercising professional skepticism when
making professional judgments. As a student of auditing, you can expect to encounter difficult economic
Presentation assertion: The objective is to establish with evidence that the information has been properly transactions as an auditor. When a difficult transaction is encountered, auditors must take the time to fully
presented and described, and that the disclosures are clearly expressed. Key questions include ―Was the understand the economic substance of that transaction and then critically evaluate, with skepticism, the
information in the disclosure properly presented and disclosed?‖ evidence provided by the client to justify its accounting treatment. There are no shortcuts allowed. Rather,
auditors must always hold a belief that a potential conflict of interest exist between the auditor and
Assertions about Account Balances and Related Disclosures management, and they must be unbiased and objective when making their professional judgments.
Existence assertion: The objective is to establish with evidence that the balance represents assets, 1.13 Generally speaking, assurance services involve the lending of credibility to information, whether financial
liabilities, sales, and expenses that are real and in existence at the balance sheet date. Key questions or nonfinancial. CPAs have assured vote counts (e.g., Baseball Hall of Fame), dollar amounts of prizes that
include ―Does this number truly represent assets that existed at the balance sheet date?‖ sweepstakes have claimed to award, accuracy of advertisements, investment performance statistics, and
characteristics claimed for computer software programs. Some specific examples of assurance service
Completeness assertion: The objective is to establish with evidence that all balances of the period are in the engagements performed on nonfinancial information include
financial statements. Key questions related to completeness include ―Are the asset and liability accounts in
the financial statements complete?‖ eXtensible Business Reporting Language (XBRL) reporting.
Rights and obligations assertion: The objectives related to rights and obligations are to establish with Enterprise risk management assessment.
evidence that assets are owned (or rights such as capitalized leases are shown) and liabilities are owed. Key
questions related to this assertion include ―Does the company really own the assets? And ―Are related legal Information risk assessment and assurance.
responsibilities identified?‖
Third-party reimbursement maximization.
Accuracy, Valuation and Allocation assertions: The objective is to establish with evidence that balances
have been valued correctly. Key questions include ―Are the account balances accurate?‖ ―Are the accounts Rental property operations review.
valued correctly?‖ and ―Are expenses allocated to the period(s) benefited?‖
Customer satisfaction surveys.
Presentation assertion: The objective is to establish with evidence that the balance sheet amounts, and
related footnote disclosures are complete, properly presented and are understandable to the financial Evaluation of investment management policies.
statement users. Key questions relate to ―Is the account properly presented in the correct financial
Fraud and illegal acts prevention and deterrence.
statement category‖ And, ―are the footnote disclosures complete and presented to promote an
understanding of the nature of the account?‖ Internal audit outsourcing.
1.11 In general, management‘s financial statement assertions are important to auditors because they are used 1.14 There are three major areas of public accounting services
when assessing risks by determining the different types of misstatements that could occur for each assertion
related to each significant account and disclosure. Next, auditors use the assertions to develop audit Financial Statement Audit and other types of Assurance services.
procedures that are appropriate to mitigate the risk of material misstatement for each assertion. In essence,
Tax services.
the key questions that must be answered about each of the relevant assertions become the focal points for
Consulting and Advisory services.
audit procedures. Audit procedures are the means to answer the key questions posed by management‘s
financial statement assertions. In fact, the procedures are completed to provide the evidence necessary to
1.15 Operational auditing is the study of business operations for the purpose of making recommendations about
persuade the auditor that there is no material misstatement related to each of the relevant assertions
the economic and efficient use of resources, effective achievement of business objectives, and compliance
identified for an engagement.
with company policies. The AICPA views operational auditing as a type of consulting or advisory service
offered by public accounting firms.
The ASB assertions differ from the PCAOB assertions in that they provide greater detail and clarity for
auditors to conceptualize the type of misstatements that may exist in the financial statements. Thus, the
PCAOB assertions are more general than the ASB assertions. Importantly, the PCAOB recognizes that
Solution Manual For Auditing & Assurance Services CHAPTER 01
Auditing and Assurance Services
9th Edition by Timothy Louwers, Penelope Bagley LEARNING OBJECTIVES
Review Multiple Exercises, Problems,
Checkpoints Choice and Simulations
1. Define information risk and explain how the 1, 2, 3 29, 31, 38 65*
financial statement auditing process helps to
reduce this risk, thereby reducing the cost of
capital for a company.
2. Define and contrast assurance, attestation, 4, 5, 6, 7, 8 23, 25, 28, 44, 60, 65*
and financial statement auditing services. 50
3. Describe and define the assertions that 9, 10, 11 36, 39, 40, 41, 45, 62, 63, 67, 68, 69
management makes about the recognition, 46, 47, 48, 49, 52,
measurement, presentation, and disclosure of 53, 54, 55, 57, 58,
the financial statements and explain why 59
auditors use them as a focal point of the audit.
4. Define professional skepticism and explain its 12 24, 37 61
key characteristics.
5. Describe the organization of public accounting 13, 14 30, 42, 56 72
firms and identify the various services that
they offer.
6. Describe the audits and auditors in 15, 16, 17, 18 26, 27, 32, 34, 35 64, 66
governmental, internal, and operational
auditing.
7. List and explain the requirements for 19, 20, 21, 22 33, 43, 51 70, 71
becoming a certified public accountant (CPA)
and other certifications available to an
accounting professional.
(*) Item relates to multiple learning objectives
,Chapter 01 - Auditing and Assurance Services Chapter 01 - Auditing and Assurance Services
SOLUTIONS FOR REVIEW CHECKPOINTS auditor‘s success depends upon his or her independent, objective, and competent assessment of the
information (e.g., the conformity of the financial statements with the appropriate reporting framework).
1.1 Business risk is the risk that an entity will fail to meet its business objectives. When assessing The independent auditor‘s role is to lend credibility to the information; hence, the outsider will likely seek
business risk, a professional must consider all possible threats to an entity‘s goals and objectives. Some his or her independent opinion about the financial statements.
illustrative examples include the risk that: 1) its existing customers will start buying products or services
from its primary competitors; 2) its product lines will become obsolete; 3) its taxes will increase; 4) key 1.6 An attestation engagement is ―an engagement in which a practitioner is engaged to issue or does issue a
government contracts will be lost; 5) key employees will leave the entity; and many other examples exist. written communication that expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party‖ (SSAE 10, AT 101.01). To attest means to lend credibility or to vouch for
1.2 To help minimize business risk and take advantage of other opportunities presented in today‘s competitive the truth or accuracy of the statements that one party makes to another. The attest function is a term often
business environment, decision makers such as chief executive officers (CEOs) demand timely, relevant, applied to the activities of independent CPAs when acting as auditors of financial statements.
and reliable information. There are at least four environmental conditions that increase demand for reliable
information. First, complexity which implies that events and transactions in today‘s global business 1.7 An assurance service engagement is one that improves the quality of information, or its context, for
environment can be complicated. Most investors do not have the level of expertise needed to properly decision makers. Thus, an attestation service engagement is one type of an assurance service. Another
account for complex transactions. Second is remoteness which implies that decision makers are often way of thinking about the issue is to remember that the financial statement audit engagement is one type of
separated from current and potential business relationships due to distance and time. For example, investors an attestation service. Please see exhibit 1.3 in the text which depicts the relationship among assurance,
may not be able to visit distant locations to check up on their investments. Third is time-sensitivity which attestation, and auditing engagements.
implies that in today‘s economic environment, investors and other users of financial statements need to
make decisions more rapidly than ever before. As a result, the ability to promptly obtain high-quality 1.8 According to the American Accounting Association, ―Auditing is a systematic process of objectively
information is essential. Fourth is a consequence which implies that decisions may very well involve obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the
significant investments. As a result, the consequences can be severe if information cannot be obtained degree of correspondence between the assertions and established criteria and communicating the results to
interested users.‖ In effect, auditors add reliability to the information that is provided to interested users.
1.3 Of all the different risks discussed in the chapter up to this point, information risk is the one that is most Of course, this definition is focused on an external reporting context. Students may also discuss how
likely to create the demand for independent and objective assurance services is information risk or the governmental and internal auditors operate as well.
probability that the information circulated by an entity will be false or misleading. Because the primary
source of information for investors and creditors is the company itself, an incentive exists for that In response to ―What do auditors do?‖ students can respond by stating that auditors (1) obtain and evaluate
company‘s management to make their business or service appear to be better than it actually may be, to put evidence about assertions made by management about economic actions and events, (2) ascertain the
their best foot forward. As a result, preparers and issuers of financial information (directors, managers, degree of correspondence between the assertions and the appropriate reporting framework, and (3) issue an
accountants, and other people employed in a business) might benefit by giving false, misleading, or overly audit report (opinion). Students can also respond more generally by stating that auditors essentially lend
optimistic information. This potential conflict of interest between information providers and users which credibility to the financial statements presented by management.
provides the underlying basis for the demand for reliable information.
1.9 Financial accounting refers to the process of recording, classifying, summarizing, and reporting about a
1.4 The four major elements of the broad definition of assurance services are company‘s assets, liabilities, capital, revenues, and expenses in the financial statements in accordance with
the applicable financial reporting framework (e.g., GAAP). In so doing, the management team is making
Independence. CPAs want to preserve their reputation and competitive advantage by always preserving several assertions about the financial statements. The financial accounting process is the responsibility of
integrity and objectivity when performing assurance services. the management team.
Professional services. Virtually all work performed by CPAs is defined as ―professional services‖ as long Financial statement auditing refers to the process whereby professional auditors gather evidence related to
as it involves some element of judgment based on education and experience. the assertions that management makes in the financial statements, evaluates the evidence and concludes on
the fairness of the financial statements in a report.
Improving the quality of information or its context. The emphasis is on ―information,‖ CPAs‘ traditional
area of expertise. CPAs can enhance quality by assuring users about the reliability and relevance of They differ because accountants produce the financial statements in accordance with the applicable
information, and these two features are closely related to the familiar credibility-lending products of financial reporting framework. After this is complete, financial statement auditors then perform procedures
attestation and audit services. ―Context‖ is relevance in a different light. For assurance services, improving to ascertain whether the financial statements have been prepared in accordance with the applicable financial
the context of information refers to improving its usefulness when targeted to particular decision makers in reporting framework.
the surroundings of particular decision problems.
1.10 The two major classifications of ASB assertions with several assertions in each classification are:
For decision makers. As the ―consumers‖ of assurance services, decision makers are the beneficiaries of the
assurance services. Decision makers may or may not be the ―client‖ that pays the fee and may or may not be Assertions About Classes of Transactions and Events, and Related Disclosures
one of the parties to an assertion or other information, but they personify the consumer focus of new and
different professional work. Occurrence assertion: The objective is to establish with evidence that transactions giving rise to assets,
liabilities, sales, and expenses occurred. Key questions include ―Did the recorded sales transactions really
1.5 An assurance services engagement is any assignment that improves the quality of information, or its occur?‖
context, for decision makers. Because information (e.g., financial statements) are prepared by managers of
an entity who have authority and responsibility for financial success or failure, an outsider may be skeptical Completeness assertion: The objective is to establish with evidence that all transactions of the period that
that the information truly is objective, free from bias, fully informative, and free from material error, should be are included in the financial statements (including footnotes). Completeness also refers to proper
intentional or inadvertent. The services of an independent auditor helps resolve those doubts because the inclusion in financial statements of all revenue, expense, and related disclosures. Key questions related to
, Chapter 01 - Auditing and Assurance Services Chapter 01 - Auditing and Assurance Services
completeness include ―Are the revenue and expense account balances complete?‖ and ―Were all the their assertions are more general and do allow auditors to use the more granular and specific ASB
transactions that should be included reflected properly in the footnote disclosures?‖ assertions when completing the audit. As a result, largely each of the firms auditing public companies with
international operations feature the ASB assertions to guide their auditing processes. Importantly, a student
Cutoff assertion: The objective is to establish with evidence that all transactions that properly belong in the of auditing will note that the ASB assertions are in direct alignment with the PCAOB assertions. This is
preceding or following accounting periods are excluded. And, that only those transactions that should be illustrated in the text in Exhibit 1.4
included in the financial statements are included. A key question related to the cutoff assertion includes
―Were all the transactions recorded in the right period?‖ 1.12 By having a belief that a potential conflict of interest always exists between the auditor and the
management team, auditors will be skeptical when completing the audit. Indeed, even though the vast
Accuracy assertion: The objective is to establish with evidence that transactions have been recorded at the majority of audits do not contain fraud, auditors have no choice but to consider the possibility of fraud on
correct amount. Key questions include ―Were the expenses recorded at the proper dollar amount?‖ every audit. Stated simply, errors and financial reporting frauds have happened in the past, and users of
financial statements and audit reports expect auditors to detect material misstatements if they exist.
Classification assertion: The objective is to establish with evidence that transactions were posted to the
correct accounts. Key questions include ―Was this expense recorded in the appropriate account?‖ Indeed, auditing firms have long recognized the importance of exercising professional skepticism when
making professional judgments. As a student of auditing, you can expect to encounter difficult economic
Presentation assertion: The objective is to establish with evidence that the information has been properly transactions as an auditor. When a difficult transaction is encountered, auditors must take the time to fully
presented and described, and that the disclosures are clearly expressed. Key questions include ―Was the understand the economic substance of that transaction and then critically evaluate, with skepticism, the
information in the disclosure properly presented and disclosed?‖ evidence provided by the client to justify its accounting treatment. There are no shortcuts allowed. Rather,
auditors must always hold a belief that a potential conflict of interest exist between the auditor and
Assertions about Account Balances and Related Disclosures management, and they must be unbiased and objective when making their professional judgments.
Existence assertion: The objective is to establish with evidence that the balance represents assets, 1.13 Generally speaking, assurance services involve the lending of credibility to information, whether financial
liabilities, sales, and expenses that are real and in existence at the balance sheet date. Key questions or nonfinancial. CPAs have assured vote counts (e.g., Baseball Hall of Fame), dollar amounts of prizes that
include ―Does this number truly represent assets that existed at the balance sheet date?‖ sweepstakes have claimed to award, accuracy of advertisements, investment performance statistics, and
characteristics claimed for computer software programs. Some specific examples of assurance service
Completeness assertion: The objective is to establish with evidence that all balances of the period are in the engagements performed on nonfinancial information include
financial statements. Key questions related to completeness include ―Are the asset and liability accounts in
the financial statements complete?‖ eXtensible Business Reporting Language (XBRL) reporting.
Rights and obligations assertion: The objectives related to rights and obligations are to establish with Enterprise risk management assessment.
evidence that assets are owned (or rights such as capitalized leases are shown) and liabilities are owed. Key
questions related to this assertion include ―Does the company really own the assets? And ―Are related legal Information risk assessment and assurance.
responsibilities identified?‖
Third-party reimbursement maximization.
Accuracy, Valuation and Allocation assertions: The objective is to establish with evidence that balances
have been valued correctly. Key questions include ―Are the account balances accurate?‖ ―Are the accounts Rental property operations review.
valued correctly?‖ and ―Are expenses allocated to the period(s) benefited?‖
Customer satisfaction surveys.
Presentation assertion: The objective is to establish with evidence that the balance sheet amounts, and
related footnote disclosures are complete, properly presented and are understandable to the financial Evaluation of investment management policies.
statement users. Key questions relate to ―Is the account properly presented in the correct financial
Fraud and illegal acts prevention and deterrence.
statement category‖ And, ―are the footnote disclosures complete and presented to promote an
understanding of the nature of the account?‖ Internal audit outsourcing.
1.11 In general, management‘s financial statement assertions are important to auditors because they are used 1.14 There are three major areas of public accounting services
when assessing risks by determining the different types of misstatements that could occur for each assertion
related to each significant account and disclosure. Next, auditors use the assertions to develop audit Financial Statement Audit and other types of Assurance services.
procedures that are appropriate to mitigate the risk of material misstatement for each assertion. In essence,
Tax services.
the key questions that must be answered about each of the relevant assertions become the focal points for
Consulting and Advisory services.
audit procedures. Audit procedures are the means to answer the key questions posed by management‘s
financial statement assertions. In fact, the procedures are completed to provide the evidence necessary to
1.15 Operational auditing is the study of business operations for the purpose of making recommendations about
persuade the auditor that there is no material misstatement related to each of the relevant assertions
the economic and efficient use of resources, effective achievement of business objectives, and compliance
identified for an engagement.
with company policies. The AICPA views operational auditing as a type of consulting or advisory service
offered by public accounting firms.
The ASB assertions differ from the PCAOB assertions in that they provide greater detail and clarity for
auditors to conceptualize the type of misstatements that may exist in the financial statements. Thus, the
PCAOB assertions are more general than the ASB assertions. Importantly, the PCAOB recognizes that
