Solutions for Auditing & Assurance Services, 4th Canadian Edition by William F. Messier.pdf

ACCm425mAuditingmAndmassurancemservice
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Solutions Manual m




Auditing and A m m




ssurance Services m




Fourteenth Edition
m

,ACCm425mAuditingmAndmassurancemservice
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CONTENTS
I. THEmAUDITINGmPROFESSION
1 ThemDemandmformAuditmandmOthermAssurancemServices m .m................ 1-1
2 ThemCPAm Profession......................................................... 2-1
3 AuditmReports................................................................. 3-1
4 ProfessionalmEthicsm .m.m................................ ............. ........... 4-1
5 LegalmLiability ....................................................................................... 5-1

II. THEmAUDITmPROCESS
6 AuditmResponsibilities mandmObjectives..................................... 6-1
7 Auditm Evidencem.m.m.......... ..... .... ..... ..... ..... .... .... m......... .......... 7-1
8 AuditmPlanningmandmAnalyticalmProcedures................................ 8-1
9 Materiality mandmRisk m .m.m....................................................... 9-1
10 Sectionm404mAudits mofmInternalmControlmandmControlmRisk ....................... 10-1
11 FraudmAuditing........................................................................................... 11-1
12 ThemImpactmofmInformationmTechnologymonmthemAuditmProcess................ 12-1
13 OverallmAuditmPlanmandmAuditmProgram .................................................... 13-1

III. APPLICATION mOFmTHEmAUDITmPROCESS mTOmTHEmSALESmAN
DmCOLLECTION mCYCLE
14 AuditmofmthemSales mandmCollectionmCycle:mTests mofmControls
andmSubstantivemTestsmofmTransactions ................................................... 14-1
15 AuditingmSamplingmformTests mofmControls
andmSubstantivemTestsmofmTransactions ................................................... 15-1
16 CompletingmthemTests minmthemSales mandmCollectionmCycle:
Accounts mReceivable ................................................................................ 16-1
17 AuditmSamplingmformTestsmofmDetails mofmBalances .................................... 17-1

IV. APPLICATION mOFmTHEm AUDITmPROCESSm TOm OTHER mCYCLES
18 AuditmofmthemAcquisitionmandmPaymentmCycle:
Tests mofmControls,mSubstantivemTests mofmTransactions,
andmAccountsmPayable.............................................................................. 18-1
19 CompletingmthemTests minmthemAcquisitionmandmPaymentmCycle:
VerificationmofmSelectedmAccounts ............................................................ 19-1
20 AuditmofmthemPayrollmandmPersonnelmCycle ............................................... 20-1
21 AuditmofmthemInventorymandmWarehousingmCycle....................................... 21-1
22 AuditmofmthemCapitalmAcquisitionmandmRepaymentmCycle.......................... 22-1
23 AuditmofmCashmBalances............................................................................ 23-1

V. COMPLETINGmTHEmAUDIT
24 CompletingmthemAudit ................................................................................ 24-1

VI. OTHER mASSURANCE m AND m NONASSURANCE m SERVICES
25 OthermAssurancemServices ........................................................................ 25-1
26 InternalmandmGovernmentalmFinancialmAuditing
andmOperationalmAuditing .......................................................................... 26-1

,ACCm425mAuditingmAndmassurancemservice
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, ACCm425mAuditingmAndmassurancemservice
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Chapter 1 m




The Demand for Audit and Other Assurance Services
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■ Review mQuestions

1-1 Themrelationshipmamongmauditmservices,mattestationmservices,mandmassuranc
emservicesmismreflectedminmFigurem1-
3monmpagem12mofmthemtext.mAnmassurancemservicemismanmindependentmprofessionalm
servicemtomimprovemthemqualitymofminformationmformdecisionmmakers.mAnmattestation
mservicemismamformmofmassurancemserviceminmwhichmthemCPA mfirmmissuesmamreportma

boutmthemreliabilitymofmanmassertionmthatmismthemresponsibilitymofmanothermparty.mAud
itmservicesmaremamformmofmattestationmserviceminmwhichmthemauditormexpressesmamwri
ttenmconclusionmaboutmthemdegreemofmcorrespondencembetweenminformationmandme
stablishedmcriteria.
Themmostmcommonmformmofmauditmservicemismanmauditmofmhistoricalmfinancial m
statements,minmwhichmthemauditormexpressesmamconclusionmasmtomwhethermthemfinan
cialmstatementsmarempresentedminmaccordancemwithmanmapplicablemfinancialmreporti
ngmframeworkmsuchmasmU.S.mGAAPmormIFRS.mAnmexamplemofmanmattestationmservic
emismamreportmonmthemeffectivenessmofmanmentity’sminternalmcontrolmovermfinancialmre
porting.mTheremaremmanympossiblemformsmofmassurancemservices,mincludingmservices
mrelatedmtombusinessmperformance mmeasurement,mhealth mcaremperformance,mandmi

nformationmsystemmreliability.

1-2 Anmindependentmauditmismammeansmofmsatisfyingmthemneedmformreliableminfor
mationmonmthempartmofmdecisionmmakers.mFactorsmofmamcomplexmsocietymwhichmcont
ributemtomthismneedmare:

1. Remotenessmofminformation
a. Ownersm(stockholders)mdivorcedmfrommmanagement
b. Directorsmnotminvolvedminmday-to-daymoperationsmormdecisions
c. Dispersionmofmthembusinessmamongmnumerousmgeographi
cmlocationsmandmcomplexmcorporatemstructures
2. Biasesmandmmotivesmofmprovider
a. Informationmwillmbembiasedminmfavormofmthemprovidermwhenmhism
ormhermgoalsmareminconsistentmwithmthemdecisionmmaker'smgoal
s.
3. Voluminousmdata
a. Possiblym millionsmofmtransactionsmprocessedmdailym via
msophisticated mcomputerized msystems

b. Multiplemproductmlines
c. Multiplemtransactionmlocations
4. Complexmexchangemtransactions
a. New mandmchangingmbusinessmrelationshipsmleadmtominnovativ
emaccountingmandmreportingmproblems
b. Potentialm impactm ofm transactionsm notm quantifiable,m leadingm t
omincreasedmdisclosures

1-1