,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
m m m m m m m m m m
Chapterm01m-mAuditingmandmAssurancemServices
CHAPTERm01
AuditingmandmAssurancemServices
LEARNINGmOBJECTIVES
ReviewmC Multiple Exercises,mProblems,
heckpoints mChoice mandmSimulations
1.mDefineminformationmriskmandmexplainmhowmth
emfinancialmstatementmauditingmprocessmhelp
1,m2,m3 29,m31,m38 65*
smtomreducemthismrisk,mtherebymreducingmthem
costmofmcapitalmformamcompany.
2.
4,m5,m6,m7,m8 23,m25,m28,m44,m50 60,m65*
Definemandmcontrastmassurance,mattestation
,mandmfinancialmstatementmauditingmservices.
3.
36,m39,m40,m41,m45,
Describemandmdefinemthemassertionsmthatm
46,m47,m48,m49,m52,
managementmmakesmaboutmthemrecognition,m 9,m10,m11 62,m63,m67,m68,m69
53,m54,m55,m57,m58,
measurement,mpresentation,mandmdisclosuremo
59
fmthemfinancialmstatementsmandmexplainmwhym
auditorsmusemthemmasmamfocalmpointmofmthemau
dit.
4.
Definemprofessionalmskepticismmandmexpla 12 24,m37 61
inmitsmkeymcharacteristics.
5.
Describemthemorganizationmofmpublicmaccou 13,m14 30,m42,m56 72
ntingmfirmsmandmidentifymthemvariousmservicesm
thatmtheymoffer.
6.
Describemthemauditsmandmauditorsmi 15,m16,m17,m18 26,m27,m32,m34,m35 64,m66
nmgovernmental,minternal,mandmoperati
onalmauditing.
7.
Listmandmexplainmthemrequirementsmformbe
19,m20,m21,m22 33,m43,m51 70,m71
comingmamcertifiedmpublicmaccountantm(CPA)m
andmothermcertificationsmavailablemtomanmacco
untingmprofessional.
(*)mItemmrelatesmtommultiplemlearningmobjectives
1-1
Copyrightm©2024mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmo
fmMcGraw-HillmEducation.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
m m m m m m m m m m
Chapterm01m-mAuditingmandmAssurancemServices
SOLUTIONSmFORmREVIEWmCHECKPOINTS
1.1 Businessmriskmismthemriskmthatmanmentitymwillmfailmtommeetmitsmbusinessmobjectives.mWhenmassessingmbusines
smrisk,mamprofessionalmmustmconsidermallmpossiblemthreatsmtomanmentity’smgoalsmandmobjectives.mSomemillustr
ativemexamplesmincludemthemriskmthat:m1)mitsmexistingmcustomersmwillmstartmbuyingmproductsmormservicesmfro
mmitsmprimarymcompetitors;m2)mitsmproductmlinesmwillmbecomemobsolete;m3)mitsmtaxesmwillmincrease;m4)mkeym
governmentmcontractsmwillmbemlost;m5)mkeymemployeesmwillmleavemthementity;mandmmanymothermexamplesmex
ist.
1.2 Tomhelpmminimizembusinessmriskmandmtakemadvantagemofmothermopportunitiesmpresentedminmtoday’smcompeti
tivembusinessmenvironment,mdecisionmmakersmsuchmasmchiefmexecutivemofficersm(CEOs)mdemandmtimely,mre
levant,mandmreliableminformation.mTheremarematmleastmfourmenvironmentalmconditionsmthatmincreasemdemand
mformreliableminformation.mFirst,mcomplexitym whichmimpliesmthatmeventsmandmtransactionsminmtoday’sm global
mbusinessmenvironmentmcanmbemcomplicated.mMostminvestorsmdomnotmhavemthemlevelmofmexpertisemneededmt
omproperlymaccountmformcomplexmtransactions.mSecondmismremotenessmwhichmimpliesmthatmdecisionmmakers
maremoftenmseparatedmfrommcurrentmandmpotentialmbusinessmrelationshipsmduemtomdistancemandmtime.mFormex
ample,minvestorsmmaymnotmbemablemtomvisitmdistantmlocationsmtomcheckmupmonmtheirminvestments.mThirdmismti
me-sensitivitymwhich
impliesmthatminmtoday’smeconomicmenvironment,minvestorsmandmothermusersmofmfinancialmstatementsmne
edmtommakemdecisionsmmoremrapidlymthanmevermbefore.mAsmamresult,mthemabilitymtompromptlymobtainmhig
h-
qualityminformationmismessential.mFourthmismamconsequencemwhichmimpliesmthatmdecisionsmmaymverymw
ellminvolvemsignificantminvestments.mAsmamresult,mthemconsequencesmcanmbemseveremifminformationmcan
notmbemobtained
1.3 Ofmallmthemdifferentmrisksmdiscussedminmthemchaptermupmtomthismpoint,minformationmriskmismthemonemthatmism
mostmlikelymtomcreatemthemdemandmformindependentmandmobjectivemassurancemservicesmisminformationmriskm
ormthemprobabilitymthatmtheminformationmcirculatedmbymanmentitymwillmbemfalsemormmisleading.mBecausemthe
mprimarymsourcemofminformationmforminvestorsmandmcreditorsmismthemcompanymitself,manmincentivemexistsmfo
rmthatmcompany’smmanagementmtommakemtheirmbusinessmormservicemappearmtombembettermthanmitmactuallymm
aymbe,mtomputmtheirmbestmfootmforward.mAsmamresult,mpreparersmandmissuersmofmfinancialminformationm(direct
ors,mmanagers,maccountants,mandmothermpeoplememployedminmambusiness)mmightmbenefitmbymgivingmfalse,m
misleading,mormoverlymoptimisticminformation.mThismpotentialmconflictmofminterestmbetweenminformationmpr
ovidersmandmusersmwhichmprovidesmthemunderlyingmbasismformthemdemandmformreliableminformation.
1.4 Themfourmmajormelementsmofmthembroadmdefinitionmofmassurancemservicesmare
Independence.mCPAsmwantmtompreservemtheirmreputationmandmcompetitivemadvantagembymalwaysmpreser
vingmintegritymandmobjectivitymwhenmperformingmassurancemservices.
Professionalmservices.mVirtuallymallmworkmperformedmbymCPAsmismdefinedmasm“professionalmservices”mas
mlongmasmitminvolvesmsomemelementmofmjudgmentmbasedmonmeducationmandmexperience.
Improvingmthemqualitymofminformationmormitsmcontext.mThememphasismismonm“information,”mCPAs’mtraditi
onalmareamofmexpertise.mCPAsmcanmenhancemqualitymbymassuringmusersmaboutmthemreliabilitymandmrelevanc
emofminformation,mandmthesemtwomfeaturesmaremcloselymrelatedmtomthemfamiliarmcredibility-
lendingmproductsmof
attestationmandmauditmservices.m“Context”mismrelevanceminmamdifferentmlight.mFormassurancemservices,mimpr
ovingmthemcontextmofminformationmrefersmtomimprovingmitsmusefulnessmwhenmtargetedmtomparticularmdecision
mmakersminmthemsurroundingsmofmparticularmdecisionmproblems.
Formdecisionmmakers.mAsmthem“consumers”mofmassurancemservices,mdecisionmmakersmaremthembeneficiariesm
ofmthemassurancemservices.mDecisionmmakersmmaymormmaymnotmbemthem“client”mthatmpaysmthemfeemandmmaym
ormmaymnotmbemonemofmthempartiesmtomanmassertionmormotherminformation,mbutmtheympersonifymthemconsumer
mfocusmofmnewmandmdifferentmprofessionalm work.
1-2
Copyrightm©2024mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmo
fmMcGraw-HillmEducation.
mynursytest.store
, 1.5 Anmassurancemservicesmengagementmismanymassignmentmthatmimprovesmthemqualitymofminformation,mormitsmc
ontext,mformdecisionmmakers.mBecauseminformationm(e.g.,mfinancialmstatements)marempreparedmbymmanagers
mofmanmentitym whom havemauthoritymandmresponsibilitym formfinancialmsuccessmormfailure,manmoutsiderm maymbe
mskepticalmthatmtheminformationmtrulymismobjective,mfreemfrommbias,mfullyminformative,mandmfreemfrommmateri
almerror,
1-3
Copyrightm©2024mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmo
fmMcGraw-HillmEducation.
mynursytest.store
m m m m m m m m m m
Chapterm01m-mAuditingmandmAssurancemServices
CHAPTERm01
AuditingmandmAssurancemServices
LEARNINGmOBJECTIVES
ReviewmC Multiple Exercises,mProblems,
heckpoints mChoice mandmSimulations
1.mDefineminformationmriskmandmexplainmhowmth
emfinancialmstatementmauditingmprocessmhelp
1,m2,m3 29,m31,m38 65*
smtomreducemthismrisk,mtherebymreducingmthem
costmofmcapitalmformamcompany.
2.
4,m5,m6,m7,m8 23,m25,m28,m44,m50 60,m65*
Definemandmcontrastmassurance,mattestation
,mandmfinancialmstatementmauditingmservices.
3.
36,m39,m40,m41,m45,
Describemandmdefinemthemassertionsmthatm
46,m47,m48,m49,m52,
managementmmakesmaboutmthemrecognition,m 9,m10,m11 62,m63,m67,m68,m69
53,m54,m55,m57,m58,
measurement,mpresentation,mandmdisclosuremo
59
fmthemfinancialmstatementsmandmexplainmwhym
auditorsmusemthemmasmamfocalmpointmofmthemau
dit.
4.
Definemprofessionalmskepticismmandmexpla 12 24,m37 61
inmitsmkeymcharacteristics.
5.
Describemthemorganizationmofmpublicmaccou 13,m14 30,m42,m56 72
ntingmfirmsmandmidentifymthemvariousmservicesm
thatmtheymoffer.
6.
Describemthemauditsmandmauditorsmi 15,m16,m17,m18 26,m27,m32,m34,m35 64,m66
nmgovernmental,minternal,mandmoperati
onalmauditing.
7.
Listmandmexplainmthemrequirementsmformbe
19,m20,m21,m22 33,m43,m51 70,m71
comingmamcertifiedmpublicmaccountantm(CPA)m
andmothermcertificationsmavailablemtomanmacco
untingmprofessional.
(*)mItemmrelatesmtommultiplemlearningmobjectives
1-1
Copyrightm©2024mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmo
fmMcGraw-HillmEducation.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
m m m m m m m m m m
Chapterm01m-mAuditingmandmAssurancemServices
SOLUTIONSmFORmREVIEWmCHECKPOINTS
1.1 Businessmriskmismthemriskmthatmanmentitymwillmfailmtommeetmitsmbusinessmobjectives.mWhenmassessingmbusines
smrisk,mamprofessionalmmustmconsidermallmpossiblemthreatsmtomanmentity’smgoalsmandmobjectives.mSomemillustr
ativemexamplesmincludemthemriskmthat:m1)mitsmexistingmcustomersmwillmstartmbuyingmproductsmormservicesmfro
mmitsmprimarymcompetitors;m2)mitsmproductmlinesmwillmbecomemobsolete;m3)mitsmtaxesmwillmincrease;m4)mkeym
governmentmcontractsmwillmbemlost;m5)mkeymemployeesmwillmleavemthementity;mandmmanymothermexamplesmex
ist.
1.2 Tomhelpmminimizembusinessmriskmandmtakemadvantagemofmothermopportunitiesmpresentedminmtoday’smcompeti
tivembusinessmenvironment,mdecisionmmakersmsuchmasmchiefmexecutivemofficersm(CEOs)mdemandmtimely,mre
levant,mandmreliableminformation.mTheremarematmleastmfourmenvironmentalmconditionsmthatmincreasemdemand
mformreliableminformation.mFirst,mcomplexitym whichmimpliesmthatmeventsmandmtransactionsminmtoday’sm global
mbusinessmenvironmentmcanmbemcomplicated.mMostminvestorsmdomnotmhavemthemlevelmofmexpertisemneededmt
omproperlymaccountmformcomplexmtransactions.mSecondmismremotenessmwhichmimpliesmthatmdecisionmmakers
maremoftenmseparatedmfrommcurrentmandmpotentialmbusinessmrelationshipsmduemtomdistancemandmtime.mFormex
ample,minvestorsmmaymnotmbemablemtomvisitmdistantmlocationsmtomcheckmupmonmtheirminvestments.mThirdmismti
me-sensitivitymwhich
impliesmthatminmtoday’smeconomicmenvironment,minvestorsmandmothermusersmofmfinancialmstatementsmne
edmtommakemdecisionsmmoremrapidlymthanmevermbefore.mAsmamresult,mthemabilitymtompromptlymobtainmhig
h-
qualityminformationmismessential.mFourthmismamconsequencemwhichmimpliesmthatmdecisionsmmaymverymw
ellminvolvemsignificantminvestments.mAsmamresult,mthemconsequencesmcanmbemseveremifminformationmcan
notmbemobtained
1.3 Ofmallmthemdifferentmrisksmdiscussedminmthemchaptermupmtomthismpoint,minformationmriskmismthemonemthatmism
mostmlikelymtomcreatemthemdemandmformindependentmandmobjectivemassurancemservicesmisminformationmriskm
ormthemprobabilitymthatmtheminformationmcirculatedmbymanmentitymwillmbemfalsemormmisleading.mBecausemthe
mprimarymsourcemofminformationmforminvestorsmandmcreditorsmismthemcompanymitself,manmincentivemexistsmfo
rmthatmcompany’smmanagementmtommakemtheirmbusinessmormservicemappearmtombembettermthanmitmactuallymm
aymbe,mtomputmtheirmbestmfootmforward.mAsmamresult,mpreparersmandmissuersmofmfinancialminformationm(direct
ors,mmanagers,maccountants,mandmothermpeoplememployedminmambusiness)mmightmbenefitmbymgivingmfalse,m
misleading,mormoverlymoptimisticminformation.mThismpotentialmconflictmofminterestmbetweenminformationmpr
ovidersmandmusersmwhichmprovidesmthemunderlyingmbasismformthemdemandmformreliableminformation.
1.4 Themfourmmajormelementsmofmthembroadmdefinitionmofmassurancemservicesmare
Independence.mCPAsmwantmtompreservemtheirmreputationmandmcompetitivemadvantagembymalwaysmpreser
vingmintegritymandmobjectivitymwhenmperformingmassurancemservices.
Professionalmservices.mVirtuallymallmworkmperformedmbymCPAsmismdefinedmasm“professionalmservices”mas
mlongmasmitminvolvesmsomemelementmofmjudgmentmbasedmonmeducationmandmexperience.
Improvingmthemqualitymofminformationmormitsmcontext.mThememphasismismonm“information,”mCPAs’mtraditi
onalmareamofmexpertise.mCPAsmcanmenhancemqualitymbymassuringmusersmaboutmthemreliabilitymandmrelevanc
emofminformation,mandmthesemtwomfeaturesmaremcloselymrelatedmtomthemfamiliarmcredibility-
lendingmproductsmof
attestationmandmauditmservices.m“Context”mismrelevanceminmamdifferentmlight.mFormassurancemservices,mimpr
ovingmthemcontextmofminformationmrefersmtomimprovingmitsmusefulnessmwhenmtargetedmtomparticularmdecision
mmakersminmthemsurroundingsmofmparticularmdecisionmproblems.
Formdecisionmmakers.mAsmthem“consumers”mofmassurancemservices,mdecisionmmakersmaremthembeneficiariesm
ofmthemassurancemservices.mDecisionmmakersmmaymormmaymnotmbemthem“client”mthatmpaysmthemfeemandmmaym
ormmaymnotmbemonemofmthempartiesmtomanmassertionmormotherminformation,mbutmtheympersonifymthemconsumer
mfocusmofmnewmandmdifferentmprofessionalm work.
1-2
Copyrightm©2024mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmo
fmMcGraw-HillmEducation.
mynursytest.store
, 1.5 Anmassurancemservicesmengagementmismanymassignmentmthatmimprovesmthemqualitymofminformation,mormitsmc
ontext,mformdecisionmmakers.mBecauseminformationm(e.g.,mfinancialmstatements)marempreparedmbymmanagers
mofmanmentitym whom havemauthoritymandmresponsibilitym formfinancialmsuccessmormfailure,manmoutsiderm maymbe
mskepticalmthatmtheminformationmtrulymismobjective,mfreemfrommbias,mfullyminformative,mandmfreemfrommmateri
almerror,
1-3
Copyrightm©2024mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmo
fmMcGraw-HillmEducation.
mynursytest.store
