SOLUTION MANUAL FOR
Principles Of Auditing And Other Assurance Services
23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)
, • Table of Contents
cv cv
Chaptercv1:cvThecvRolecvofcvthecvPubliccvAccountantcvincvthecvAmericanEconomy
Chaptercv2:cvProfessionalcvStandards
Chaptercv3:cvProfessionalcvEthics
Chaptercv4:cvLegalcvLiabilitycvofcvCPAs
Chaptercv5:cvAuditcvEvidencecvandcvDocumentation
Chaptercv6:cvAuditcvPlanning,cvUnderstandingcvthecvClient,cvAssessingRisks,cvandcvResponding
Chaptercv7:cvInternalcvControl
Chaptercv8:cvConsiderationcvofcvInternalcvControlcvincvancvInformationTechnologycvEnvironment
Chaptercv9:cvAuditcvSampling
Chaptercv10:cvCashcvandcvFinancialcvInvestments
Chaptercv11:cvAccountscvReceivable,cvNotescvReceivable,cvandRevenue
Chaptercv12:cvInventoriescvandcvCostcvofcvGoodscvSold
Chaptercv13:cvProperty,cvPlant,cvandcvEquipment:cvDepreciationcvandDepletion
Chaptercv14:cvAccountscvPayablecvandcvOthercvLiabilities
Chaptercv15:cvDebtcvandcvEquitycvCapital
Chaptercv16:cvAuditingcvOperationscvandcvCompletingcvthecvAudit
Chaptercv17:cvAuditors’cvReports
Chaptercv18:cvIntegratedcvAuditscvofcvPubliccvCompanies
Chaptercv19:cvAdditionalcvAssurancecvServices:cvHistoricalcvFinancialInformation
Chaptercv20:cvAdditionalcvAssurancecvServices:cvOthercvInformation
Chaptercv21:cvInternal,cvOperational,cvandcvCompliancecvAuditing
,CHAPTER 1 cv
The Role of the Pub
cv cv cv cv
lic Accountant in the
cv cv cv
American Economy cv
ReviewcvQuestions
1-1 Thecv―crisiscvofcvcredibility‖cvlargelycvarosecvfromcvthecvnumbercvofcvcompaniescvthatcvrestatedcvtheircvprevio
uslycvissuedcvfinancialcvstatementscvascvacvresultcvofcv accountingcvirregularitiescvandcvfraud.cv Especiallycvre
sponsiblecvwerecvthecvverycvvisiblecvEnroncvandcvWorldComcvfraudcvcases.cvBothcvcompaniescv filedcvforcvban
kruptcycvandcvconstitutedcvthecvlargestcvcompaniescv incvAmericancvhistorycvtocvdocvso.c v Thecvextentcv ofcvthec
vaccountingcvirregularitiescv andcvfraudcvbeingcvinvestigatedcvandcvdisclosedcvbroughtcv intocvquestioncvthecvef
fectivenesscvofcvfinancialcvstatementcvaudits.c v Incvaddition,cvthecvcriminalcvconvictioncvofcvArthurcvAnderse
n,cvLLP,cvonecvofcvthecvthencvBigcv5cvaccountingcvfirms,cvoncvchargescvofcvdestroyingcvdocumentscv relatedcvt
ocvthecvEnroncvcasecvbroughtcv intocvquestioncvthecvethicscv standardscvofcvthecvprofession.
1-2 Assurancecvservicescvarecvprofessionalcvservicescvthatcvenhancecvthecvqualitycvofcvinformation,cvorcvitscvco
ntext,cvforcvdecision-
making.cvThecvtwocvtypescvare:cv(a)cvthosecvthatcvincreasecvthecvreliabilitycvofcvinformationcvandcv(b)cvthose
cvthatcvinvolvecvputtingcvinformationcvincvacvformcvorcvcontextcvthatcvfacilitatescvdecision-making.
1-3 Acvfinancialcvstatementcvauditcvis,cvbycvfar,cvthecvmostcvcommoncvtypecvofcvattestcv engagement.c v Thecvoveral
lcvassertion,cvmadecvbycvmanagement,cvmostcvfrequentlycviscvthatcvthecvfinancialcvstatementscvfollowcvgenerall
ycvacceptedcvaccountingcvprinciples.
1-4 Acvlargecvcorporationcvwithcvsecuritiescvlistedcvoncvacvstockcvexchangecviscvrequiredcvbycvthecvrulescvofcvthecvst
ockcvexchangecvandcvbycvthecvrulescvofcvthecvSecuritiescv andcvExchangecvCommissioncvtocvprovidecvancvaudit
cv reportcv withcvthecvannualcvfinancialcvstatementscv furnishedcvtocvitscv stockholders.c v Itcv alsocviscv requiredcvtocv
engagecvthecvauditorscvtocvprovidecvancvopinioncvoncvitscvinternalcvcontrol.cvApartcvfromcvlegalcvrequirement
s,cvhowever,cvacvlargecvlistedcvcorporationcvrecognizescvthatcvitcvmustcvmaintaincvinvestorcvconfidencecvincvth
ecvreliabilitycvofcvitscvfinancialcvstatementsc v andcv internalcv controlcvovercv financialcvreportingcv ifcv itc v iscv tocvc
ontinuecvtocvbecvablecvtocvsecurecvcapitalcvfromcvthecvpublic.cvThecvreportcv bycvacvfirmcvofcvcertifiedcvpubliccva
ccountantscvaddscvcredibilitycvtocvthecvfinancialcvstatementscvpreparedcvbycvthecvcorporation.c v Whencvacvsm
allcvfamily-
ownedcventerprisecvelectscv tocvhavecvancvaudit,cvthecvpurposecvusuallycviscvtocvusecvthecvauditors'cvreportcvtocvs
upportcvancvapplicationcv forcvacvbankcvloan.
, 1-5 Acvreportcvbycvancvindependentcvpubliccvaccountantcvconcerningcvthecvfairnesscvofcvacvcompany'scvfinancialcv
statementscviscvcommonlycvrequiredcvincvthecvfollowingcvsituations:
(1) Applicationcvforcvacvbankcvloan.
(2) Establishingcvcreditcv forcvpurchasecvofcv merchandise,cvequipment,cvorcvothercvassets.
(3) Reportingcvoperatingcvresults,cvfinancialcvposition,cvandcvcashcvflowscv tocvabsenteecvownerscv (stoc
kholderscvorcvpartners).
(4) Issuancecvofcvsecuritiescvbycvacvcorporation.
(5) Annualcvfinancialcvstatementscv bycvacvcorporationcvwithcvsecuritiescv listedcvoncvacv stockcvexchangec
vorcv tradedcvovercvthecvcounter.
(6) Salecvofcvancvongoingcvbusiness.
(7) Terminationcvofcv acv partnership.
1-6 Tocvaddcvcredibilitycvtocvfinancialcvstatementscviscvtocvincreasecvthecvlikelihoodcvthatcvtheycvhavecvbeencvprep
aredcvfollowingcvthecvappropriatecvcriteria,cvusuallycvgenerallycvacceptedcvaccountingcvprinciples.c v Ascvsuch
,cvancvincreasecvincvcredibilitycvresultscvincvfinancialcvstatementscvthatcvcancvbecvbelievedcvandcvreliedcvuponcvb
ycvthirdcvparties.
1-7 Businesscvriskcviscv thecvriskcvthatcvthecvinvestmentcv willcvbecvimpairedcvbecausecvacvcompanycvinvestedcvinc
viscv unablecvtocvmeetcvitscvfinancialcvobligationscvduecvtocveconomiccvconditionscvorcvpoorcvmanagementcvdec
isions.cvInformationcvriskcviscvthecvriskcvthatcvthecvinformationcvusedcvtocvassesscvbusinesscvriskcviscvnotcvac
curate.cvAuditorscvcancvdirectlycvreducecvinformationcvrisk,cvbutcvhavecvonlycvlimitedcveffectcvoncvbusinesscv
risk.
1-8 Atcvthecvbeginningcvofcvthecvcentury,cvthecvprincipalcvobjectivecvofcvauditingcvwascvthecvpreventioncvandcvdete
ctioncvofcvfraud.cvAuditcvworkcvcenteredcvoncvthecvbalancecvsheet,cvbecausecvthecvincomecvstatementcvwascvre
gardedcvascvhighlycvconfidentialcvandcvnotcv forcv publiccvdisclosure.c v Today,cvthecvprincipalcvobjectivecvofcv
auditingcviscv tocvformcvancvopinioncvoncvthecvfairnesscvofcvfinancialcvstatementscvandcvtheircvconformitycvwith
cvgenerallycvacceptedcvaccountingcvprinciples.c v Butcv thecvprofessionalcvstandardscv alsocvrequirecvthatcv ancvau
ditcv becvdesignedcvtocvprovidecvreasonablecvassurancecvofcvdetectingcvmaterialcvmisstatements,cvduecvtocverro
rscv orcv fraud.c v Particularcvemphasiscv iscv placedcvoncvthecvincomecvstatementcv whichcviscvofcvgreatcvimporta
ncecvtocvinvestors.cv Auditingcvtodaycvalsocvhascv thecvobjectivescvofcvmeetingcvthecvrequirementscvofcvthecvSecu
ritiescv andcvExchangecvCommissioncv(SEC)cv andcvthecvPubliccvCompanycvAccountingcvOversightcvBoardcv
forcvpubliccvcompanies.
1-9 Thecvstatementcv iscv incorrect.cvThecvincreasingcvintegratedcvdatabasescvofc v today,cvalongcvwithcvavail
ablecvauditcvprocedurescvmakecvauditedcventirecvpopulationscvacvpossibilitycvincvmanycvsituations.
1-10 Ancvoperationalcvauditcvattemptscvtocvmeasurecvthecveffectivenesscvandcvefficiencycvofcvacvspecificcvunitcv
ofcvancvorganization.cv Itcvinvolvescv morecvsubjectivecvjudgmentscvthancvacvcompliancecvauditcvorcvancvau
ditcvofcvfinancialcvstatementscvbecausecvthecvcriteriacvofcveffectivenesscvandcvefficiencycvofcvdepartmenta
lcvperformancecvarecvnotcv ascvclearlycvestablishedcvascvarecvmanycvlawscvandcvregulationscvorcvgenerallycva
cceptedcvaccountingcvprinciples.
Thecvreportcv preparedcvaftercv completioncvofcvancvoperationalcvauditcv iscv usuallycvdirectedcvtocvman
agementcvofcvthecvorganizationcvincvwhichcvthecvauditcvworkcvwascvdone.
1-11 Acvcompliancecvauditcviscvancvauditcvtocvdeterminecvwhethercvfinancialcvreportscvorcvothercvassertionscvarecv i
ncvcompliancecvwithcvestablishedcvcriteria.cv Thecvnecessarycvingredientscvarecvverifiablecvdatacvandcvthecvex
istencecvofcvstandardscvestablishedcvbycvancvauthoritativecvbody.c v Ancvoperationalcvaudit,cvoncvthecvothercvh
and,cviscv acvreviewcvofcvacvdepartmentcvorcvothercvunitcvofcvacvbusinesscv orcvgovernmentalcvorganizationcvtocv
measurecvthecveffectivenesscv andcvefficiencycvofcvoperations.cv Internalcvauditorscvoftencvperformcvoperatio
nalcvauditscvascvdocvauditorscv employedcvbycvthecvGovernmentcvAccountabilitycvOfficecv(GAO)cvofcvthecvf
Principles Of Auditing And Other Assurance Services
23rd Edition By Ray Whittington Kurt
ALL Chapters (1 - 21)
, • Table of Contents
cv cv
Chaptercv1:cvThecvRolecvofcvthecvPubliccvAccountantcvincvthecvAmericanEconomy
Chaptercv2:cvProfessionalcvStandards
Chaptercv3:cvProfessionalcvEthics
Chaptercv4:cvLegalcvLiabilitycvofcvCPAs
Chaptercv5:cvAuditcvEvidencecvandcvDocumentation
Chaptercv6:cvAuditcvPlanning,cvUnderstandingcvthecvClient,cvAssessingRisks,cvandcvResponding
Chaptercv7:cvInternalcvControl
Chaptercv8:cvConsiderationcvofcvInternalcvControlcvincvancvInformationTechnologycvEnvironment
Chaptercv9:cvAuditcvSampling
Chaptercv10:cvCashcvandcvFinancialcvInvestments
Chaptercv11:cvAccountscvReceivable,cvNotescvReceivable,cvandRevenue
Chaptercv12:cvInventoriescvandcvCostcvofcvGoodscvSold
Chaptercv13:cvProperty,cvPlant,cvandcvEquipment:cvDepreciationcvandDepletion
Chaptercv14:cvAccountscvPayablecvandcvOthercvLiabilities
Chaptercv15:cvDebtcvandcvEquitycvCapital
Chaptercv16:cvAuditingcvOperationscvandcvCompletingcvthecvAudit
Chaptercv17:cvAuditors’cvReports
Chaptercv18:cvIntegratedcvAuditscvofcvPubliccvCompanies
Chaptercv19:cvAdditionalcvAssurancecvServices:cvHistoricalcvFinancialInformation
Chaptercv20:cvAdditionalcvAssurancecvServices:cvOthercvInformation
Chaptercv21:cvInternal,cvOperational,cvandcvCompliancecvAuditing
,CHAPTER 1 cv
The Role of the Pub
cv cv cv cv
lic Accountant in the
cv cv cv
American Economy cv
ReviewcvQuestions
1-1 Thecv―crisiscvofcvcredibility‖cvlargelycvarosecvfromcvthecvnumbercvofcvcompaniescvthatcvrestatedcvtheircvprevio
uslycvissuedcvfinancialcvstatementscvascvacvresultcvofcv accountingcvirregularitiescvandcvfraud.cv Especiallycvre
sponsiblecvwerecvthecvverycvvisiblecvEnroncvandcvWorldComcvfraudcvcases.cvBothcvcompaniescv filedcvforcvban
kruptcycvandcvconstitutedcvthecvlargestcvcompaniescv incvAmericancvhistorycvtocvdocvso.c v Thecvextentcv ofcvthec
vaccountingcvirregularitiescv andcvfraudcvbeingcvinvestigatedcvandcvdisclosedcvbroughtcv intocvquestioncvthecvef
fectivenesscvofcvfinancialcvstatementcvaudits.c v Incvaddition,cvthecvcriminalcvconvictioncvofcvArthurcvAnderse
n,cvLLP,cvonecvofcvthecvthencvBigcv5cvaccountingcvfirms,cvoncvchargescvofcvdestroyingcvdocumentscv relatedcvt
ocvthecvEnroncvcasecvbroughtcv intocvquestioncvthecvethicscv standardscvofcvthecvprofession.
1-2 Assurancecvservicescvarecvprofessionalcvservicescvthatcvenhancecvthecvqualitycvofcvinformation,cvorcvitscvco
ntext,cvforcvdecision-
making.cvThecvtwocvtypescvare:cv(a)cvthosecvthatcvincreasecvthecvreliabilitycvofcvinformationcvandcv(b)cvthose
cvthatcvinvolvecvputtingcvinformationcvincvacvformcvorcvcontextcvthatcvfacilitatescvdecision-making.
1-3 Acvfinancialcvstatementcvauditcvis,cvbycvfar,cvthecvmostcvcommoncvtypecvofcvattestcv engagement.c v Thecvoveral
lcvassertion,cvmadecvbycvmanagement,cvmostcvfrequentlycviscvthatcvthecvfinancialcvstatementscvfollowcvgenerall
ycvacceptedcvaccountingcvprinciples.
1-4 Acvlargecvcorporationcvwithcvsecuritiescvlistedcvoncvacvstockcvexchangecviscvrequiredcvbycvthecvrulescvofcvthecvst
ockcvexchangecvandcvbycvthecvrulescvofcvthecvSecuritiescv andcvExchangecvCommissioncvtocvprovidecvancvaudit
cv reportcv withcvthecvannualcvfinancialcvstatementscv furnishedcvtocvitscv stockholders.c v Itcv alsocviscv requiredcvtocv
engagecvthecvauditorscvtocvprovidecvancvopinioncvoncvitscvinternalcvcontrol.cvApartcvfromcvlegalcvrequirement
s,cvhowever,cvacvlargecvlistedcvcorporationcvrecognizescvthatcvitcvmustcvmaintaincvinvestorcvconfidencecvincvth
ecvreliabilitycvofcvitscvfinancialcvstatementsc v andcv internalcv controlcvovercv financialcvreportingcv ifcv itc v iscv tocvc
ontinuecvtocvbecvablecvtocvsecurecvcapitalcvfromcvthecvpublic.cvThecvreportcv bycvacvfirmcvofcvcertifiedcvpubliccva
ccountantscvaddscvcredibilitycvtocvthecvfinancialcvstatementscvpreparedcvbycvthecvcorporation.c v Whencvacvsm
allcvfamily-
ownedcventerprisecvelectscv tocvhavecvancvaudit,cvthecvpurposecvusuallycviscvtocvusecvthecvauditors'cvreportcvtocvs
upportcvancvapplicationcv forcvacvbankcvloan.
, 1-5 Acvreportcvbycvancvindependentcvpubliccvaccountantcvconcerningcvthecvfairnesscvofcvacvcompany'scvfinancialcv
statementscviscvcommonlycvrequiredcvincvthecvfollowingcvsituations:
(1) Applicationcvforcvacvbankcvloan.
(2) Establishingcvcreditcv forcvpurchasecvofcv merchandise,cvequipment,cvorcvothercvassets.
(3) Reportingcvoperatingcvresults,cvfinancialcvposition,cvandcvcashcvflowscv tocvabsenteecvownerscv (stoc
kholderscvorcvpartners).
(4) Issuancecvofcvsecuritiescvbycvacvcorporation.
(5) Annualcvfinancialcvstatementscv bycvacvcorporationcvwithcvsecuritiescv listedcvoncvacv stockcvexchangec
vorcv tradedcvovercvthecvcounter.
(6) Salecvofcvancvongoingcvbusiness.
(7) Terminationcvofcv acv partnership.
1-6 Tocvaddcvcredibilitycvtocvfinancialcvstatementscviscvtocvincreasecvthecvlikelihoodcvthatcvtheycvhavecvbeencvprep
aredcvfollowingcvthecvappropriatecvcriteria,cvusuallycvgenerallycvacceptedcvaccountingcvprinciples.c v Ascvsuch
,cvancvincreasecvincvcredibilitycvresultscvincvfinancialcvstatementscvthatcvcancvbecvbelievedcvandcvreliedcvuponcvb
ycvthirdcvparties.
1-7 Businesscvriskcviscv thecvriskcvthatcvthecvinvestmentcv willcvbecvimpairedcvbecausecvacvcompanycvinvestedcvinc
viscv unablecvtocvmeetcvitscvfinancialcvobligationscvduecvtocveconomiccvconditionscvorcvpoorcvmanagementcvdec
isions.cvInformationcvriskcviscvthecvriskcvthatcvthecvinformationcvusedcvtocvassesscvbusinesscvriskcviscvnotcvac
curate.cvAuditorscvcancvdirectlycvreducecvinformationcvrisk,cvbutcvhavecvonlycvlimitedcveffectcvoncvbusinesscv
risk.
1-8 Atcvthecvbeginningcvofcvthecvcentury,cvthecvprincipalcvobjectivecvofcvauditingcvwascvthecvpreventioncvandcvdete
ctioncvofcvfraud.cvAuditcvworkcvcenteredcvoncvthecvbalancecvsheet,cvbecausecvthecvincomecvstatementcvwascvre
gardedcvascvhighlycvconfidentialcvandcvnotcv forcv publiccvdisclosure.c v Today,cvthecvprincipalcvobjectivecvofcv
auditingcviscv tocvformcvancvopinioncvoncvthecvfairnesscvofcvfinancialcvstatementscvandcvtheircvconformitycvwith
cvgenerallycvacceptedcvaccountingcvprinciples.c v Butcv thecvprofessionalcvstandardscv alsocvrequirecvthatcv ancvau
ditcv becvdesignedcvtocvprovidecvreasonablecvassurancecvofcvdetectingcvmaterialcvmisstatements,cvduecvtocverro
rscv orcv fraud.c v Particularcvemphasiscv iscv placedcvoncvthecvincomecvstatementcv whichcviscvofcvgreatcvimporta
ncecvtocvinvestors.cv Auditingcvtodaycvalsocvhascv thecvobjectivescvofcvmeetingcvthecvrequirementscvofcvthecvSecu
ritiescv andcvExchangecvCommissioncv(SEC)cv andcvthecvPubliccvCompanycvAccountingcvOversightcvBoardcv
forcvpubliccvcompanies.
1-9 Thecvstatementcv iscv incorrect.cvThecvincreasingcvintegratedcvdatabasescvofc v today,cvalongcvwithcvavail
ablecvauditcvprocedurescvmakecvauditedcventirecvpopulationscvacvpossibilitycvincvmanycvsituations.
1-10 Ancvoperationalcvauditcvattemptscvtocvmeasurecvthecveffectivenesscvandcvefficiencycvofcvacvspecificcvunitcv
ofcvancvorganization.cv Itcvinvolvescv morecvsubjectivecvjudgmentscvthancvacvcompliancecvauditcvorcvancvau
ditcvofcvfinancialcvstatementscvbecausecvthecvcriteriacvofcveffectivenesscvandcvefficiencycvofcvdepartmenta
lcvperformancecvarecvnotcv ascvclearlycvestablishedcvascvarecvmanycvlawscvandcvregulationscvorcvgenerallycva
cceptedcvaccountingcvprinciples.
Thecvreportcv preparedcvaftercv completioncvofcvancvoperationalcvauditcv iscv usuallycvdirectedcvtocvman
agementcvofcvthecvorganizationcvincvwhichcvthecvauditcvworkcvwascvdone.
1-11 Acvcompliancecvauditcviscvancvauditcvtocvdeterminecvwhethercvfinancialcvreportscvorcvothercvassertionscvarecv i
ncvcompliancecvwithcvestablishedcvcriteria.cv Thecvnecessarycvingredientscvarecvverifiablecvdatacvandcvthecvex
istencecvofcvstandardscvestablishedcvbycvancvauthoritativecvbody.c v Ancvoperationalcvaudit,cvoncvthecvothercvh
and,cviscv acvreviewcvofcvacvdepartmentcvorcvothercvunitcvofcvacvbusinesscv orcvgovernmentalcvorganizationcvtocv
measurecvthecveffectivenesscv andcvefficiencycvofcvoperations.cv Internalcvauditorscvoftencvperformcvoperatio
nalcvauditscvascvdocvauditorscv employedcvbycvthecvGovernmentcvAccountabilitycvOfficecv(GAO)cvofcvthecvf
