Created By: Irfan Ali
SOLUTION MANUAL FOR AUDITING: A RISK-BASED
APPROACH 12TH EDITION BY ZEHMS, GRAMLING,
RITTENBERG A++
Solutions for Chapter 1
Solutions Manual Reconciliation from 11e to 12e
Question # for 11e Deleted/replaced/updated/new? Question # for 12e
1 1
2 Deleted & replaced with question 2
about regulatoryenforcement
3 3
4 4
5 5
6 6
7 7
8 Updated from a generic question to 8
one specificallyfocused on the
Theranos fraud.
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
,Created By: Irfan Ali
20 20
21 21
22 Updated to reflect 2021 IESB 22
Code of Ethics.
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
40 Changed order of learning objectives; 31
same question
41 Changed order of learning objectives; 32
same question
42 Changed order of learning objectives; 33
same question
31 34
32 Updated – added additional content on 35
poor judgments as documented in a
PCAOB enforcement release
33 36
34 37
35 38
36 39
37 40
38 41
39 42
New fraud case about Elizabeth Holmes 43
,Created By: Irfan Ali
& Theranos
43 44
44 45
45 46
46 47
47 48
48 49
49 50
50 Updated to a 2021 PCAOB enforcement 51
case illustrating the same points.
New case investigating the outcome of 52
the Holmes/Theranos trial.
New case simulation on data analytics 53
and CPA exam written communication.
51 Deleted Academic
Research case; eliminating this feature.
52 Deleted Academic Research case;
eliminating this feature.
Answers to Check Your Basic Knowledge Questions
1-1 T
1-2 F
1-3 d
1-4 b
1-5 T
1-6 F
1-7 a
1-8 b
1-9 T
1-10 F
, Created By: Irfan Ali
1-11 d
1-12 c
1-13 T
1-14 T
1-15 b
1-16 d
1-17 T
1-18 F
1-19 d
1-20 c
1-21 T
1-22 T
1-23 b
1-24 a
Review Questions and Short Cases
1-1
The objective of external auditing is to provide opinions on the reliability of the financial
statements and, as part of an integrated audit, provide opinions on internal control effectiveness.
The value of the external auditing profession is affirmed when the public has confidence in its
objectivity and the accuracy of its opinions. The capital markets depend on accurate, reliable,
and objective (neutral) data that portray the economic nature of an entity’s business and in turn
provide a base to judge current progress toward long-term objectives. If the market does not
receive reliable data, investors lose confidence in the system, make poor decisions, and may lose
a great deal of money; ultimately, the system may fail. By providing an independent audit
opinion, the capital markets have assurance that the financial data that they are basing their
decisions on are accurate.
1-2
SOLUTION MANUAL FOR AUDITING: A RISK-BASED
APPROACH 12TH EDITION BY ZEHMS, GRAMLING,
RITTENBERG A++
Solutions for Chapter 1
Solutions Manual Reconciliation from 11e to 12e
Question # for 11e Deleted/replaced/updated/new? Question # for 12e
1 1
2 Deleted & replaced with question 2
about regulatoryenforcement
3 3
4 4
5 5
6 6
7 7
8 Updated from a generic question to 8
one specificallyfocused on the
Theranos fraud.
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
,Created By: Irfan Ali
20 20
21 21
22 Updated to reflect 2021 IESB 22
Code of Ethics.
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
40 Changed order of learning objectives; 31
same question
41 Changed order of learning objectives; 32
same question
42 Changed order of learning objectives; 33
same question
31 34
32 Updated – added additional content on 35
poor judgments as documented in a
PCAOB enforcement release
33 36
34 37
35 38
36 39
37 40
38 41
39 42
New fraud case about Elizabeth Holmes 43
,Created By: Irfan Ali
& Theranos
43 44
44 45
45 46
46 47
47 48
48 49
49 50
50 Updated to a 2021 PCAOB enforcement 51
case illustrating the same points.
New case investigating the outcome of 52
the Holmes/Theranos trial.
New case simulation on data analytics 53
and CPA exam written communication.
51 Deleted Academic
Research case; eliminating this feature.
52 Deleted Academic Research case;
eliminating this feature.
Answers to Check Your Basic Knowledge Questions
1-1 T
1-2 F
1-3 d
1-4 b
1-5 T
1-6 F
1-7 a
1-8 b
1-9 T
1-10 F
, Created By: Irfan Ali
1-11 d
1-12 c
1-13 T
1-14 T
1-15 b
1-16 d
1-17 T
1-18 F
1-19 d
1-20 c
1-21 T
1-22 T
1-23 b
1-24 a
Review Questions and Short Cases
1-1
The objective of external auditing is to provide opinions on the reliability of the financial
statements and, as part of an integrated audit, provide opinions on internal control effectiveness.
The value of the external auditing profession is affirmed when the public has confidence in its
objectivity and the accuracy of its opinions. The capital markets depend on accurate, reliable,
and objective (neutral) data that portray the economic nature of an entity’s business and in turn
provide a base to judge current progress toward long-term objectives. If the market does not
receive reliable data, investors lose confidence in the system, make poor decisions, and may lose
a great deal of money; ultimately, the system may fail. By providing an independent audit
opinion, the capital markets have assurance that the financial data that they are basing their
decisions on are accurate.
1-2
