,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
m m m m m m m m m m
Chapterm01 m-mAuditingmand mAssurancemServices
CHAPTER m01
AuditingmandmAssurancemServices
LEARNINGmOBJECTIVES
ReviewmChec Multiple Exercises,mProblems
kpoints mChoice ,mand mSimulations
1.m Defineminformationmriskmand mexplain mhowmth
emfinancialmstatementmauditingmprocessmhelp
1,m2,m3 29,m31,m38 65*
smto mreducemthismrisk,mthereby mreducingmthem
cost mof mcapitalmforma mcompany.
2.
4,m5,m6,m7,m8 23,m25,m28,m44,m50 60,m65*
Definemand mcontrast massurance,mattestation,
mand mfinancialmstatement mauditingmservices.
3.
36,m39,m40,m41,m45,
Describemand mdefinemthemassertionsmthat m
46,m47,m48,m49,m52,
management mmakesmabout mthemrecognition,m 9,m10,m11 62,m63,m67,m68,m69
53,m54,m55,m57,m58,
measurement,mpresentation,mand mdisclosuremo
59
f mthemfinancialmstatementsmand mexplain mwhy m
auditorsmusemthem masmamfocalmpoint mof mthemau
dit.
4.
12 24,m37 61
Definemprofessionalmskepticism mand mexpla
in mitsmkey mcharacteristics.
5.
Describemthemorganization mof mpublicmaccou 13,m14 30,m42,m56 72
ntingmfirmsmand midentify mthemvariousmservices
mthat mthey moffer.
6.
Describemthemauditsmand mauditorsmi 15,m16,m17,m18 26,m27,m32,m34,m35 64,m66
n mgovernmental,minternal,mand moperatio
nalmauditing.
7.
List mand mexplain mthemrequirementsmformbe
19,m20,m21,m22 33,m43,m51 70,m71
comingma mcertified mpublicmaccountant m(CPA)m
and mothermcertificationsmavailablemto manmacco
untingmprofessional.
(*)mItem mrelatesmto mmultiplemlearningmobjectives
1-1
Copyright m©2024 mMcGraw-
HillmEducation.mAllmrightsmreserved.mNo mreproduction mormdistribution mwithout mthempriormwritten mconsent mo
f mMcGraw-HillmEducation.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
m m m m m m m m m m
Chapterm01 m-mAuditingmand mAssurancemServices
SOLUTIONS mFOR mREVIEWmCHECKPOINTS
1 .1 Businessmrisk mismthemrisk mthat man mentity mwillmfailmto mmeet mitsmbusinessmobjectives.mWhen massessingmbusines
smrisk,ma mprofessionalmmust mconsidermallmpossiblemthreatsmto man mentity’smgoalsmand mobjectives.mSomemillustr
ativemexamplesmincludemthemrisk mthat: m1)mitsmexistingmcustomersmwillmstart mbuyingmproductsmormservicesmfro
m mitsmprimary mcompetitors; m2)mitsmproduct mlinesmwillmbecomemobsolete; m3)mitsmtaxesmwillmincrease; m4)mkey m
government mcontractsmwillmbemlost; m5)mkey memployeesmwillmleavemthementity; mand mmanymothermexamplesme
xist.
1 .2 To mhelp mminimizembusinessmrisk mand mtakemadvantagemof mothermopportunitiesmpresented min mtoday’smcompeti
tivembusinessmenvironment,mdecision mmakersmsuch masmchief mexecutive mofficersm(CEOs)mdemand mtimely,mre
levant,mand mreliableminformation.mTheremaremat mleast mfourmenvironmentalmconditionsmthat mincreasemdemand
mformreliable minformation.mFirst,mcomplexity mwhich mimpliesmthat meventsmand mtransactionsmin mtoday’smglobal
mbusinessmenvironment mcan mbe mcomplicated.mMost minvestorsmdo mnot mhave mthe mlevelmof mexpertise mneeded mt
o mproperly maccount mformcomplex mtransactions.mSecond mismremotenessmwhich mimpliesmthat mdecision mmakers
mare moften mseparated mfrom mcurrent mandmpotentialmbusinessmrelationshipsmdue mto mdistance mand mtime.mFormexa
mple,minvestorsmmay mnotmbemablemto mvisit mdistant mlocationsmto mcheck mup mon mtheirminvestments.mThird mismti
me-sensitivity mwhich
impliesmthat min mtoday’smeconomicmenvironment,minvestorsmandmothermusersmof mfinancialmstatementsmneedmto
mmake mdecisionsmmore mrapidly mthan mevermbefore.mAsma mresult,mthe mability mto mpromptly mobtain mhigh-
quality minformation mismessential.mFourth misma mconsequence mwhich mimpliesmthat mdecisionsmmay mvery mwellmi
nvolvemsignificant minvestments.mAsma mresult,mthemconsequencesmcan mbemseveremif minformation mcannotmbemo
btained
1 .3 Of mallmthemdifferent mrisksmdiscussed min mthemchaptermup mto mthismpoint,minformation mrisk mismthemonemthat mi
smmost mlikely mto mcreatemthemdemandmformindependentmand mobjectivemassurancemservicesmisminformation
mrisk mormthe mprobability mthat mthe minformation mcirculatedmby manmentity mwillmbe mfalse mormmisleading.mBec
ausemthemprimary msourcemof minformation mforminvestorsmand mcreditorsmismthemcompany mitself,man mincenti
vemexistsmformthat
company’smmanagement mto mmakemtheirmbusinessmormservicemappearmto mbembettermthanmit mactually mmay mbe,m
to mput mtheirmbest mfoot mforward.mAsma mresult,mpreparersmand missuersmof mfinancialminformation m(directors,mm
anagers,maccountants,mand mothermpeoplememployed min ma mbusiness)mmight mbenefit mby mgivingmfalse,mmislead
ing,mormoverly moptimisticminformation.mThismpotentialmconflict mof minterest mbetween minformation mprovidersm
and musersmwhich mprovidesmthemunderlyingmbasismformthemdemand mformreliableminformation.
1 .4 Themfourmmajormelementsmof mthembroad mdefinition mof massurancemservicesmare
Independence.mCPAsmwant mto mpreservemtheirmreputation mandmcompetitive madvantagemby malwaysmpreserving
mintegrity mand mobjectivity mwhen mperformingmassurance mservices.
Professionalmservices.mVirtually mallmwork mperformed mby mCPAsmismdefined masm“professionalmservices”masml
ongmasmitminvolvesmsomemelement mof mjudgment mbased mon meducation mand mexperience.
Improvingmthemquality mof minformation mormitsmcontext.mThememphasismismon m“information,” mCPAs’mtradition
almarea mof mexpertise.mCPAsmcan menhancemquality mby massuringmusersmabout mthemreliability mand mrelevancemof
minformation,mand mthese mtwo mfeaturesmare mclosely mrelated mto mthe mfamiliarmcredibility-lendingmproductsmof
attestation mand maudit mservices.m“Context” mismrelevancemin ma mdifferent mlight.mFormassurancemservices,mimpro
ving mthemcontext mofminformationmrefersmto mimprovingmitsmusefulnessmwhen mtargeted mto mparticularmdecision m
makersmin mthemsurroundingsmof mparticularmdecision mproblems.
Formdecision mmakers.mAsmthem“consumers” mof massurancemservices,mdecision mmakersmaremthembeneficiariesmo
f mthemassurancemservices.mDecision mmakersmmay mormmaymnotmbemthem“client”mthat mpaysmthemfeemand mmaymo
rmmay mnotmbemonemofmthempartiesmto man massertion mormotherminformation,mbutmthey mpersonify mthemconsumerm
focusmof mnewmand mdifferent mprofessionalmwork.
1 .5 An massurancemservicesmengagement mismany massignment mthat mimprovesmthemquality mof minformation,mormitsmc
1-2
Copyright m©2024 mMcGraw-
HillmEducation.mAllmrightsmreserved.mNo mreproduction mormdistribution mwithout mthempriormwritten mconsent mo
f mMcGraw-HillmEducation.
mynursytest.store
, ontext,mformdecision mmakers.mBecauseminformation m(e.g.,mfinancialmstatements)maremprepared mby mmanagers
mof man mentity mwho mhave mauthority mand mresponsibility mformfinancialmsuccessmormfailure,man moutsidermmay mbe
mskepticalmthat mthe minformation mtruly mismobjective,mfree mfrom mbias,mfully minformative,mand mfree mfrom mmater
ialmerror,
1-3
Copyright m©2024 mMcGraw-
HillmEducation.mAllmrightsmreserved.mNo mreproduction mormdistribution mwithout mthempriormwritten mconsent mo
f mMcGraw-HillmEducation.
mynursytest.store
m m m m m m m m m m
Chapterm01 m-mAuditingmand mAssurancemServices
CHAPTER m01
AuditingmandmAssurancemServices
LEARNINGmOBJECTIVES
ReviewmChec Multiple Exercises,mProblems
kpoints mChoice ,mand mSimulations
1.m Defineminformationmriskmand mexplain mhowmth
emfinancialmstatementmauditingmprocessmhelp
1,m2,m3 29,m31,m38 65*
smto mreducemthismrisk,mthereby mreducingmthem
cost mof mcapitalmforma mcompany.
2.
4,m5,m6,m7,m8 23,m25,m28,m44,m50 60,m65*
Definemand mcontrast massurance,mattestation,
mand mfinancialmstatement mauditingmservices.
3.
36,m39,m40,m41,m45,
Describemand mdefinemthemassertionsmthat m
46,m47,m48,m49,m52,
management mmakesmabout mthemrecognition,m 9,m10,m11 62,m63,m67,m68,m69
53,m54,m55,m57,m58,
measurement,mpresentation,mand mdisclosuremo
59
f mthemfinancialmstatementsmand mexplain mwhy m
auditorsmusemthem masmamfocalmpoint mof mthemau
dit.
4.
12 24,m37 61
Definemprofessionalmskepticism mand mexpla
in mitsmkey mcharacteristics.
5.
Describemthemorganization mof mpublicmaccou 13,m14 30,m42,m56 72
ntingmfirmsmand midentify mthemvariousmservices
mthat mthey moffer.
6.
Describemthemauditsmand mauditorsmi 15,m16,m17,m18 26,m27,m32,m34,m35 64,m66
n mgovernmental,minternal,mand moperatio
nalmauditing.
7.
List mand mexplain mthemrequirementsmformbe
19,m20,m21,m22 33,m43,m51 70,m71
comingma mcertified mpublicmaccountant m(CPA)m
and mothermcertificationsmavailablemto manmacco
untingmprofessional.
(*)mItem mrelatesmto mmultiplemlearningmobjectives
1-1
Copyright m©2024 mMcGraw-
HillmEducation.mAllmrightsmreserved.mNo mreproduction mormdistribution mwithout mthempriormwritten mconsent mo
f mMcGraw-HillmEducation.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
m m m m m m m m m m
Chapterm01 m-mAuditingmand mAssurancemServices
SOLUTIONS mFOR mREVIEWmCHECKPOINTS
1 .1 Businessmrisk mismthemrisk mthat man mentity mwillmfailmto mmeet mitsmbusinessmobjectives.mWhen massessingmbusines
smrisk,ma mprofessionalmmust mconsidermallmpossiblemthreatsmto man mentity’smgoalsmand mobjectives.mSomemillustr
ativemexamplesmincludemthemrisk mthat: m1)mitsmexistingmcustomersmwillmstart mbuyingmproductsmormservicesmfro
m mitsmprimary mcompetitors; m2)mitsmproduct mlinesmwillmbecomemobsolete; m3)mitsmtaxesmwillmincrease; m4)mkey m
government mcontractsmwillmbemlost; m5)mkey memployeesmwillmleavemthementity; mand mmanymothermexamplesme
xist.
1 .2 To mhelp mminimizembusinessmrisk mand mtakemadvantagemof mothermopportunitiesmpresented min mtoday’smcompeti
tivembusinessmenvironment,mdecision mmakersmsuch masmchief mexecutive mofficersm(CEOs)mdemand mtimely,mre
levant,mand mreliableminformation.mTheremaremat mleast mfourmenvironmentalmconditionsmthat mincreasemdemand
mformreliable minformation.mFirst,mcomplexity mwhich mimpliesmthat meventsmand mtransactionsmin mtoday’smglobal
mbusinessmenvironment mcan mbe mcomplicated.mMost minvestorsmdo mnot mhave mthe mlevelmof mexpertise mneeded mt
o mproperly maccount mformcomplex mtransactions.mSecond mismremotenessmwhich mimpliesmthat mdecision mmakers
mare moften mseparated mfrom mcurrent mandmpotentialmbusinessmrelationshipsmdue mto mdistance mand mtime.mFormexa
mple,minvestorsmmay mnotmbemablemto mvisit mdistant mlocationsmto mcheck mup mon mtheirminvestments.mThird mismti
me-sensitivity mwhich
impliesmthat min mtoday’smeconomicmenvironment,minvestorsmandmothermusersmof mfinancialmstatementsmneedmto
mmake mdecisionsmmore mrapidly mthan mevermbefore.mAsma mresult,mthe mability mto mpromptly mobtain mhigh-
quality minformation mismessential.mFourth misma mconsequence mwhich mimpliesmthat mdecisionsmmay mvery mwellmi
nvolvemsignificant minvestments.mAsma mresult,mthemconsequencesmcan mbemseveremif minformation mcannotmbemo
btained
1 .3 Of mallmthemdifferent mrisksmdiscussed min mthemchaptermup mto mthismpoint,minformation mrisk mismthemonemthat mi
smmost mlikely mto mcreatemthemdemandmformindependentmand mobjectivemassurancemservicesmisminformation
mrisk mormthe mprobability mthat mthe minformation mcirculatedmby manmentity mwillmbe mfalse mormmisleading.mBec
ausemthemprimary msourcemof minformation mforminvestorsmand mcreditorsmismthemcompany mitself,man mincenti
vemexistsmformthat
company’smmanagement mto mmakemtheirmbusinessmormservicemappearmto mbembettermthanmit mactually mmay mbe,m
to mput mtheirmbest mfoot mforward.mAsma mresult,mpreparersmand missuersmof mfinancialminformation m(directors,mm
anagers,maccountants,mand mothermpeoplememployed min ma mbusiness)mmight mbenefit mby mgivingmfalse,mmislead
ing,mormoverly moptimisticminformation.mThismpotentialmconflict mof minterest mbetween minformation mprovidersm
and musersmwhich mprovidesmthemunderlyingmbasismformthemdemand mformreliableminformation.
1 .4 Themfourmmajormelementsmof mthembroad mdefinition mof massurancemservicesmare
Independence.mCPAsmwant mto mpreservemtheirmreputation mandmcompetitive madvantagemby malwaysmpreserving
mintegrity mand mobjectivity mwhen mperformingmassurance mservices.
Professionalmservices.mVirtually mallmwork mperformed mby mCPAsmismdefined masm“professionalmservices”masml
ongmasmitminvolvesmsomemelement mof mjudgment mbased mon meducation mand mexperience.
Improvingmthemquality mof minformation mormitsmcontext.mThememphasismismon m“information,” mCPAs’mtradition
almarea mof mexpertise.mCPAsmcan menhancemquality mby massuringmusersmabout mthemreliability mand mrelevancemof
minformation,mand mthese mtwo mfeaturesmare mclosely mrelated mto mthe mfamiliarmcredibility-lendingmproductsmof
attestation mand maudit mservices.m“Context” mismrelevancemin ma mdifferent mlight.mFormassurancemservices,mimpro
ving mthemcontext mofminformationmrefersmto mimprovingmitsmusefulnessmwhen mtargeted mto mparticularmdecision m
makersmin mthemsurroundingsmof mparticularmdecision mproblems.
Formdecision mmakers.mAsmthem“consumers” mof massurancemservices,mdecision mmakersmaremthembeneficiariesmo
f mthemassurancemservices.mDecision mmakersmmay mormmaymnotmbemthem“client”mthat mpaysmthemfeemand mmaymo
rmmay mnotmbemonemofmthempartiesmto man massertion mormotherminformation,mbutmthey mpersonify mthemconsumerm
focusmof mnewmand mdifferent mprofessionalmwork.
1 .5 An massurancemservicesmengagement mismany massignment mthat mimprovesmthemquality mof minformation,mormitsmc
1-2
Copyright m©2024 mMcGraw-
HillmEducation.mAllmrightsmreserved.mNo mreproduction mormdistribution mwithout mthempriormwritten mconsent mo
f mMcGraw-HillmEducation.
mynursytest.store
, ontext,mformdecision mmakers.mBecauseminformation m(e.g.,mfinancialmstatements)maremprepared mby mmanagers
mof man mentity mwho mhave mauthority mand mresponsibility mformfinancialmsuccessmormfailure,man moutsidermmay mbe
mskepticalmthat mthe minformation mtruly mismobjective,mfree mfrom mbias,mfully minformative,mand mfree mfrom mmater
ialmerror,
1-3
Copyright m©2024 mMcGraw-
HillmEducation.mAllmrightsmreserved.mNo mreproduction mormdistribution mwithout mthempriormwritten mconsent mo
f mMcGraw-HillmEducation.
mynursytest.store
