SOLUTION MANUAL FOR Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton

For Instructor Use Only

,SOLUTION MANUAL FOR s3 s3


AuditingAPracticalApproachwithDataAnalytics,2nd EditionRaymondN.Johnson,Laura s3
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Davis Wiley, Robyn Moroney, Fiona Campbell,Jane Hamilton
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Chapter 1- s3


16 CHAPTER1 s3



Introduction and Overview of Audit and Assurance s3 s3 s3 s3 s3 s3



Learning Objectives s3




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
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unquali- 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
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report on internal controls over financial reporting.
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8. Discuss the audit expectation gap.
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ANSWERSTO MULTIPLE-CHOICEQUESTIONS 3
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1. C
LO s31, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPA s3AC: s3RiskHAssessment, s3AnalysisHand s3Management,
Secti s3on: s3Assurance, s3Attestation, s3and s3Audit s3Services
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2. A
LO s32, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPA s3AC: s3RiskHAssessment, s3AnalysisHand s3Management,
Secti s3on: s3Different s3Assurance s3Services
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3. B
LO s32, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPAHAC: s3RiskHAssessment, s3AnalysisHand s3Management,
Secti s3on: s3Different s3Assurance s3Services
s3




4. C
LO s32, s3BT: s3C, s3Difficulty: s3Medium, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPAHAC: s3RiskHAssessment, s3Analysis s3and
Management, s3S s3ection: s3DifferentHAssurance s3Services
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5. C
LO s33, s3BT: s3C, s3Difficulty: s3Medium, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPAHAC: s3RiskHAssessment, s3Analysis s3and
Management, s3S s3ection: s3Demand s3for s3Audit s3and s3Assurance s3Services
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For Instructor Use Only

,6. B
LO s34, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPA s3AC: s3RiskHAssessment, s3AnalysisHand s3Management,
Secti s3on: s3Preparers s3and s3Auditors
s3




7. A
LO s35, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPAHAC: s3Reporting, s3Section: s3The s3Role s3of s3Regulators
and s3R s3egulations
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8. D
LO s35, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPAHBC: s3Governance s3Perspective, s3Section: s3The s3Role
of s3Re s3gulators s3and s3Regulations
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9. D
LO s36, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPA s3AC: s3RiskHAssessment, s3Analysis s3and s3Management,
Secti s3on: s3AuditHReportHon s3Financial s3Statements
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10. C
LO s36, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPA s3AC: s3Reporting, s3Section: s3Audit s3ReportHon s3the
Financial s3Statements
s3




11. B
LO s37, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPAHAC: s3Reporting, s3Section: s3AuditHReportHon s3Internal
Cont s3rolsHover s3Financial s3Reporting
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12. B
LO s38, s3BT: s3C, s3Difficulty: s3Medium, s3TOT: s32 s3min., s3AACSB: s3None, s3AICPA s3PC: s3Professional s3Behavior, s3Section: s3The
Audit s3Expectation s3Gap
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ANSWERSTO REVIEWQUESTIONS 3
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R1.1 An assurance service is any service provided by an independent practitioner that
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im- 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
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assurance to users who in tend to use the information for decision making. An
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assurance engagement has three parties: th e assurance provider (auditor/practitioner), the
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party responsible for providing the information (cl ient), and the intended users of the
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information (investors/lenders/others who rely on the in- formation).
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LO s31, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s35 s3min., s3AACSB: s3None, s3AICPA s3AC: s3RiskHAssessment, s3Analysis s3and s3Management,
Secti s3on: s3Assurance, s3Attestation, s3and s3Audit s3Services
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R1.2 The criterion used in a financial statement audit to measure and evaluate subject
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matter is the applicable financial reporting framework used by the client. The most
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common framework
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For Instructor Use Only

, used in the U.S. is Generally Accepted Accounting Principles (GAAP).
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LO s31, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s35 s3min., s3AACSB: s3None, s3AICPAHAC: s3Measurement s3AnalysisHand s3Interpretation,
s3 Sec- s3tion: s3Assurance, s3Attestation, s3and s3Audit s3Services


R1.3 Financial statements are not guaranteed to be free from error or fraud due to
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several limi- tations. These limitations include the nature of financial reporting, the nature
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of audit procedures and the need for the audit to be conducted within a reasonable
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period of time and within a rea- sonable budget. The nature of financial reporting causes
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limitations because it includes man- agement‘s judgment when applying accounting
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standards and estimates. The nature of the au- dit procedures is a limitation because
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the auditors have to rely on management to provide all th e necessary documentation
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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
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limited re- sources of time and money for an audit engagement. It would be impractical
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for auditors to ex- amine every transaction. Therefore, auditors rely on sampling
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measures to provide an accurate representation of the population, and sampling cannot
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provide absolute assurance.
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LO s32, s3BT: s3C, s3Difficulty: s3Medium, s3TOT: s315 s3min., s3AACSB: s3None, s3AICPA s3AC: s3Risk s3Assessment, s3Analysis s3and
Management, s3Section: s3Different s3Assurance s3Services
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R1.4 Management and those charged with governance can request an operational audit to
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help improve the efficiency and effectiveness of a company‘s operations. An organization‘s
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internal a udit department typically conducts operational audits.
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LO s32, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s35 s3min., s3AACSB: s3None, s3AICPAHBC: s3Governance s3Perspective, s3Section: s3Different
s3 As- s3surance s3Services
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
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com- pany, return on investment, going concern/continuity of operations, and dividend
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distributions. An independent audit helps to ensure that the information in the financial
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statements is credible and of high quality.
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LO s33, s3BT: s3C, s3Difficulty: s3Easy, s3TOT: s310 s3min., s3AACSB: s3None, s3AICPA s3BC: s3Governance s3Perspective, s3Section:
Demand s3for s3A s3udit s3and s3Assurance s3Services
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R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s
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s3financial statements. Management (the preparer) is in charge of preparing the financial
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s3statements. This i ncludes ensuring the information is presented fairly and in compliance
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s3with GAAP, or other ap- plicable financial reporting framework. Management is
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s3responsible for designing, implementing, and maintaining internal control over financial
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s3reporting, as well as providing auditors with all th e necessary documentation and
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personnel needed to complete the audit. Auditors are responsib le for providing an opinion
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s3on 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
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For Instructor Use Only