FULL TESTBANK FOR ADULTING ASSUARANCE SERVICES 9TH EDITION
EDITED BY TIMOTHY. J.LOUWERS,,PENELOPE. L BAGLEY. WITH COMPLETE
QUESTIONS AND ANSWERS GRADED A+.
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
Chapter 01 - Auditing and Assurance Services
CHAPTER 01
Auditing and Assurance Services
LEARNING OBJECTIVES
Review Multiple Exercises,
Checkpoints Choice Problems, and
Simulations
1. Define information risk and explain how
the financial statement auditing process
1, 2, 3 29, 31, 38 65*
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, 50 60, 65*
and financial statement auditing services.
3. Describe and define the assertions that
36, 39, 40, 41, 45,
management makes about the recognition,
46, 47, 48, 49, 52,
measurement, presentation, and disclosure 9, 10, 11 62, 63, 67, 68, 69
53, 54, 55, 57, 58,
of the financial statements and explain
59
why auditors use them as a focal point of
the audit.
4. Define professional skepticism and explain
its key characteristics. 12 24, 37 61
5. Describe the organization of public
accounting firms and identify the various 13, 14 30, 42, 56 72
services that they offer.
6. Describe the audits and auditors in
governmental, internal, and 15, 16, 17, 18 26, 27, 32, 34, 35 64, 66
operational auditing.
7. List and explain the requirements for
becoming a certified public accountant
19, 20, 21, 22 33, 43, 51 70, 71
(CPA) and other certifications available to
an accounting professional.
(*) Item relates to multiple learning objectives
1-1
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,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
Chapter 01 - Auditing and Assurance Services
SOLUTIONS FOR REVIEW CHECKPOINTS
1.1 Business risk is the risk that an entity will fail to meet its business objectives. When assessing
business risk, a professional must consider all possible threats to an entity’s goals and objectives.
Some 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 government contracts will be lost; 5) key employees will leave the entity; and
many other examples exist.
1.2 To help minimize business risk and take advantage of other opportunities presented in today’s
competitive business environment, decision makers such as chief executive officers (CEOs) demand
timely, relevant, 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 environment can be complicated. Most investors do not have
the level of expertise needed to properly account for complex transactions. Second is remoteness
which implies that decision makers are often separated from current and potential business
relationships due to distance and time. For example, investors may not be able to visit distant
locations to check up on their investments. Third is time-sensitivity which
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 information is essential. Fourth is a consequence which implies that decisions may very well
involve significant investments. As a result, the consequences can be severe if information cannot
be obtained
1.3 Of all the different risks discussed in the chapter up to this point, information risk is the one that
is most likely to create the demand for independent and objective assurance services is
information risk or the 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
company’s management to make their business or service appear to be better than it actually may be,
to put their best foot forward. As a result, preparers and issuers of financial information (directors,
managers, accountants, and other people employed in a business) might benefit by giving false,
misleading, or overly optimistic information. This potential conflict of interest between information
providers and users which provides the underlying basis for the demand for reliable information.
1.4 The four major elements of the broad definition of assurance services are
Independence. CPAs want to preserve their reputation and competitive advantage by always
preserving integrity and objectivity when performing assurance services.
Professional services. Virtually all work performed by CPAs is defined as “professional services” as
long as it involves some element of judgment based on education and experience.
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 information, and these two features are closely related to the familiar credibility-
lending products of
attestation and audit services. “Context” is relevance in a different light. For assurance services,
improving the context of information refers to improving its usefulness when targeted to particular
decision makers in the surroundings of particular decision problems.
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 one of the parties to an assertion or other information, but they personify the
consumer focus of new and different professional work.
1-2
Copyright ©2024 McGraw-Hill Education. All rights reserved. No reproduction or distribution without
the prior Twritten Tconsent Tof TMcGraw-Hill Education.
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, 1.5 An assurance services engagement is any assignment that improves the quality of information, or its
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 that the information truly is objective, free from bias, fully informative,
and free from material error,
1-3
Copyright ©2024 McGraw-Hill Education. All rights reserved. No reproduction or distribution without
the prior Twritten Tconsent Tof TMcGraw-Hill Education.
mynursytest.store
EDITED BY TIMOTHY. J.LOUWERS,,PENELOPE. L BAGLEY. WITH COMPLETE
QUESTIONS AND ANSWERS GRADED A+.
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
Chapter 01 - Auditing and Assurance Services
CHAPTER 01
Auditing and Assurance Services
LEARNING OBJECTIVES
Review Multiple Exercises,
Checkpoints Choice Problems, and
Simulations
1. Define information risk and explain how
the financial statement auditing process
1, 2, 3 29, 31, 38 65*
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, 50 60, 65*
and financial statement auditing services.
3. Describe and define the assertions that
36, 39, 40, 41, 45,
management makes about the recognition,
46, 47, 48, 49, 52,
measurement, presentation, and disclosure 9, 10, 11 62, 63, 67, 68, 69
53, 54, 55, 57, 58,
of the financial statements and explain
59
why auditors use them as a focal point of
the audit.
4. Define professional skepticism and explain
its key characteristics. 12 24, 37 61
5. Describe the organization of public
accounting firms and identify the various 13, 14 30, 42, 56 72
services that they offer.
6. Describe the audits and auditors in
governmental, internal, and 15, 16, 17, 18 26, 27, 32, 34, 35 64, 66
operational auditing.
7. List and explain the requirements for
becoming a certified public accountant
19, 20, 21, 22 33, 43, 51 70, 71
(CPA) and other certifications available to
an accounting professional.
(*) Item relates to multiple learning objectives
1-1
Copyright ©2024 McGraw-Hill Education. All rights reserved. No reproduction or distribution without
the prior Twritten Tconsent Tof TMcGraw-Hill Education.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
Chapter 01 - Auditing and Assurance Services
SOLUTIONS FOR REVIEW CHECKPOINTS
1.1 Business risk is the risk that an entity will fail to meet its business objectives. When assessing
business risk, a professional must consider all possible threats to an entity’s goals and objectives.
Some 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 government contracts will be lost; 5) key employees will leave the entity; and
many other examples exist.
1.2 To help minimize business risk and take advantage of other opportunities presented in today’s
competitive business environment, decision makers such as chief executive officers (CEOs) demand
timely, relevant, 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 environment can be complicated. Most investors do not have
the level of expertise needed to properly account for complex transactions. Second is remoteness
which implies that decision makers are often separated from current and potential business
relationships due to distance and time. For example, investors may not be able to visit distant
locations to check up on their investments. Third is time-sensitivity which
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 information is essential. Fourth is a consequence which implies that decisions may very well
involve significant investments. As a result, the consequences can be severe if information cannot
be obtained
1.3 Of all the different risks discussed in the chapter up to this point, information risk is the one that
is most likely to create the demand for independent and objective assurance services is
information risk or the 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
company’s management to make their business or service appear to be better than it actually may be,
to put their best foot forward. As a result, preparers and issuers of financial information (directors,
managers, accountants, and other people employed in a business) might benefit by giving false,
misleading, or overly optimistic information. This potential conflict of interest between information
providers and users which provides the underlying basis for the demand for reliable information.
1.4 The four major elements of the broad definition of assurance services are
Independence. CPAs want to preserve their reputation and competitive advantage by always
preserving integrity and objectivity when performing assurance services.
Professional services. Virtually all work performed by CPAs is defined as “professional services” as
long as it involves some element of judgment based on education and experience.
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 information, and these two features are closely related to the familiar credibility-
lending products of
attestation and audit services. “Context” is relevance in a different light. For assurance services,
improving the context of information refers to improving its usefulness when targeted to particular
decision makers in the surroundings of particular decision problems.
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 one of the parties to an assertion or other information, but they personify the
consumer focus of new and different professional work.
1-2
Copyright ©2024 McGraw-Hill Education. All rights reserved. No reproduction or distribution without
the prior Twritten Tconsent Tof TMcGraw-Hill Education.
mynursytest.store
, 1.5 An assurance services engagement is any assignment that improves the quality of information, or its
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 that the information truly is objective, free from bias, fully informative,
and free from material error,
1-3
Copyright ©2024 McGraw-Hill Education. All rights reserved. No reproduction or distribution without
the prior Twritten Tconsent Tof TMcGraw-Hill Education.
mynursytest.store
