Essentials of Auditing and Assurance Services: An Integrated Approach

by Arens, Alvin A.; Elder, Randal J.; Beasley, Mark S.

• ISBN13: 9780130463036
• ISBN10: 0130463035
• Edition: 1st
• Format: Hardcover
• Copyright: 2003-01-01
• Publisher: Pearson College Div

Summary

Offers complete coverage of the entire audit process, taking learners step by step through each audit cycle, then showing how each step relates to the process as a whole. For individuals and firms in need of information on the latest audit technology, current audit practices, and the latest auditing research.

Table of Contents

Preface	xiii
PART 1 The Auditing Profession
Assurance Services and the CPA Profession	3	(30)
Learning Objectives	3	(22)
Assurance Services	4	(4)
Economic Demand for Auditing	8	(2)
Nature of Auditing	10	(3)
Types of Audits	13	(1)
Types of Auditors	14	(2)
E-Commerce and CPA Firm Operations	16	(1)
Certified Public Accountant	16	(1)
American Institute of Certified Public Accountants (AICPA)	17	(1)
Generally Accepted Auditing Standards	18	(2)
Statements on Auditing Standards	20	(1)
Quality Control	21	(2)
Securities and Exchange Commission	23	(1)
Summary	24	(1)
Essential Terms	25	(1)
Review Ovations	26	(2)
Multiple Choice Questions from CPA Examinations	28	(1)
Discussion Questions and Problems	28	(3)
Internet Problem 1-1: Assurance Services	31	(1)
Internet Problem 1-2: CPA Vision Project	31	(2)
Audit Reports	33	(28)
Learning Objectives	33	(17)
Standard Unqualified Audit Report	34	(3)
Unqualified Audit Report with Explanatory Paragraph or Modified Wording	37	(4)
Departures from an Unqualified Audit Report	41	(1)
Materiality	42	(3)
Discussion of Conditions Requiring a Departure	45	(3)
Auditor's Decision Process for Audit Reports	48	(2)
Impact of E-Commerce on Audit Reporting	50	(1)
Summary	50	(1)
Essential Terms	50	(1)
Review Questions	51	(1)
Multiple Choke Questions from CPA Examinations	52	(1)
Discussion Questions and Problems	53	(6)
Internet Problem 2-1: Research Annual Reports	59	(2)
Professional Ethics	61	(32)
Learning Objectives	61	(25)
What Are Ethics?	62	(1)
Ethical Dilemmas	63	(3)
Special Need for Ethical Conduct in Professions	66	(2)
Code of professional Conduct	68	(3)
Independence	71	(2)
Independence Rule of Conduct and Interpretations	73	(4)
Other Rules of Conduct	77	(7)
Enforcement	84	(2)
Summary	86	(1)
Essential Terms	86	(1)
Review Questions	86	(1)
Multiple Choke Questions from CPA Examinations	87	(1)
Discussion Questions and Problems	88	(2)
Cases	90	(1)
Internet Problem 3-1: AICPA Code of Professional Conduct Ethics Rulings and Case	91	(2)
Legal Liability	93	(22)
Learning Objectives	93	(14)
Changed Legal Environment	94	(1)
Distinction Among Business Failure, Audit Failure, and Audit Risk	95	(1)
Legal Concepts Affecting Liability	96	(2)
Liability to Clients	98	(1)
Liability to Third Parties Under Common Law	99	(2)
Civil Liability Under the Federal Securities Laws	101	(3)
Criminal Liability	104	(1)
The Profession's Response to Legal Liability	105	(1)
Protecting Individual CPAs from Legal Liability	106	(1)
Summary	107	(1)
Essential Terms	107	(1)
Review Questions	108	(1)
Multiple Choke Questions from CPA Examinations	109	(1)
Discussion Questions and Problems	110	(3)
Case	113	(1)
Internet Problem 4-1: SEC Enforcement	113	(2)
PART 2 The Audit Process
Audit Responsibilities and Objectives	115	(28)
Learning Objectives	115	(20)
Objective of Conducting an Audit of Financial Statements	116	(1)
Management's Responsibilities	117	(1)
Auditor's Responsibilities	118	(3)
Financial Statement Cycles	121	(5)
Setting Audit Objectives	126	(2)
Transaction-Related Audit Objectives	128	(2)
Balance-Related Audit Objectives	130	(2)
How Audit Objectives Are Met	132	(2)
Summary	134	(1)
Essential Terms	135	(1)
Review Questions	135	(1)
Multiple Choice Questions from CPA Examinations	136	(7)
Discussion Questions and Problems	137	(4)
Internet Problem 5-1: Assertions and Evidence Associated with New Assurance Services	141	(2)
Audit Evidence	143	(26)
Learning Objectives	143	(17)
Nature of Evidence	144	(1)
Audit Evidence Decisions	145	(1)
Persuasiveness of Evidence	146	(3)
Types of Audit Evidence	149	(8)
Audit Documentation	157	(3)
Summary of Audit Documentation	160	(1)
Essential Terms	160	(1)
Review Questions	161	(1)
Multiple Choice Questions from CPA Examinations	162	(1)
Discussion Questions and Problems	163	(23)
Case	186
Internet Problem 6-1: Electronic Evidence	167	(2)
Audit Planning and Analytical Procedures	169	(36)
Learning Objectives	169	(24)
Planning	170	(1)
Accept Client and Perform Initial Audit Planning	170	(6)
Understand the Client's Business and Industry	176	(4)
Assess Client Business Risk	180	(1)
Perform Preliminary Analytical Procedures	181	(1)
Summary of the Purposes of Audit Planning	182	(1)
Analytical Procedures	182	(2)
Five Types of Analytical Procedures	184	(5)
Common Financial Ratios	189	(4)
Summary of Analytical Procedures	193	(1)
Essential terms	193	(1)
Review Questions	194	(1)
Multiple Choice Questions from CPA Examinations	195	(1)
Discussion Questions and Problems	196	(5)
Cases	201	(1)
Internet Problem 7-1: Industry Research and Client Acceptance	202	(1)
Internet Problem 7-2: Obtain Client Background Information	203	(2)
Materiality and Risk	205	(36)
Learning Objectives	205	(25)
Materiality	206	(1)
Set Preliminary Judgment about Materiality	207	(3)
Allocate Preliminary Judgment about Materiality to Segments (Tolerable Misstatement)	210	(2)
Estimate Misstatement and Compare with Preliminary Judgment	212	(1)
Risk	213	(2)
Types of Risks	215	(2)
Assessing Acceptable Audit Risk	217	(2)
Assessing Inherent Risk	219	(2)
Assessing Risks of Fraud	221	(3)
Relationship of Risks to Evidence and Factors Influencing Risks	224	(4)
Evaluating Results	228	(2)
Essential Terms	230	(1)
Review Questions	231	(1)
Multiple Choice Questions from CPA Examinations	232	(1)
Discussion Questions and Problems	233	(5)
Case	238	(1)
Internet Problem 8-1: Materiality and Tolerable Misstatement	239	(2)
Internal Control and Control Risk	241	(36)
Learning Objectives	241	(25)
Client and Auditor Concerns	242	(3)
Effect of Information Technology on Internal Control	245	(1)
Components of Internal Control	246	(8)
Procedures to Obtain an Understanding of Internal Control	254	(3)
Assess Control Risk	257	(7)
Tests of Controls	264	(2)
Decide Planned Detection Risk and Design Substantive Tests	266	(1)
Summary	266	(1)
Essential Terms	266	(2)
Review Questions	268	(1)
Multiple Choice Questions from CPA Examinations	269	(1)
Discussion Questions and Problems	270	(4)
Case	274	(1)
Integrated Case Application-Pinnacle Manufacturing: Part I	274	(2)
Internet Problem 9-1: Corporate Governance	276	(1)
Overall Audit Plan and Audit Program	277	(30)
Learning Objectives	277	(22)
Types of Tests	278	(4)
Selecting Which Types of Tests to Perform	282	(3)
Impact of Information Technology on Audit Testing	285	(1)
Evidence Mix	285	(1)
Design of the Audit Program	286	(9)
Summary of Key Evidence-Related Terms	295	(1)
Summary of the Audit Process	296	(3)
Essential Terms	299	(1)
Review Questions	299	(1)
Multiple Choice Questions from CPA Examinations	300	(1)
Discussion Questions and Problems	301	(4)
Internet Problem 10-1: Assessing Effects of Evidence Mix	305	(2)
PART 3 Application of the Audit Process to the Sales and Collection Cycle
Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions	307	(30)
Learning Objectives	307	(21)
Accounts and Classes of Transactions in the Sales and Collection Cycle	308	(1)
Business Functions in the Cycle and Related Documents and Records	309	(1)
Methodology for Designing Tests of Controls and Substantive Tests of Transactions for Sales	310	(10)
Sales Returns and Allowances	320	(1)
Methodology for Designing Tests of Controls and Substantive Tests of Transactions for Cash Receipts	321	(4)
Audit Tests for Uncollectible Accounts	325	(1)
Additional Internal Controls Over Account Balances	326	(1)
Update the Evidence Planning Worksheet	326	(1)
Effect of Results of Tests of Controls and Substantive Tests of Transactions	326	(2)
Summary	328	(1)
Essential Terms	328	(1)
Review Questions	329	(1)
Multiple Choice Questions from CPA Examinations	330	(1)
Discussion Questions and Problems	331	(4)
Case	335	(1)
Integrated Case Application-Pinnacle Manufacturing Part II	336	(1)
Internet Problem 11-1: Electronic Signatures	336	(1)
Completing the Tests in the Sales and Collection Cycle: Accounts Receivable	337	(36)
Learning Objectives	337	(21)
Methodology for Designing Tests of Details of Balances	338	(7)
Designing Tests of Details of Balances	345	(5)
Confirmation of Accounts Receivable	350	(5)
Developing Tests of Details Audit Program	355	(3)
Essential Terms	358	(1)
Review Questions	359	(1)
Multiple Choice Questions from CPA Examinations	360	(1)
Discussion Questions and Problems	361	(4)
Integrated Case Application-Pinnacle Manufacturing: Part III	365	(6)
Internet Problem 12-1: Revenue Recognition	371	(2)
Audit Sampling	373	(42)
Learning Objectives	373	(31)
Representative Samples	374	(1)
Statistical Versus Nonstatistical Sampling and Probabilistic Versus Nonprobabilistic Sample Selection	375	(1)
Nonprobabilistic Sample Selection Methods	376	(1)
Probabilistic Sample Selection Methods	377	(2)
Audit Sampling for Tests of Controls and Substantive Tests of Transactions	379	(1)
Application of Audit Sampling in Tests of Controls and Substantive Tests of Transactions	380	(14)
Audit Sampling for Tests of Details of Balances	394	(1)
Application of Audit Sampling for Tests of Details of Balances	395	(9)
Essential Terms	404	(1)
Review Questions	405	(1)
Multiple Choice Questions from CPA Examinations	406	(1)
Discussion Questions and Problems	407	(5)
Case	412	(1)
Integrated Case Application-Pinnacle Manufacturing Part IV	412	(1)
Internet Problem 13-1: Sampling for U.S. Census	413	(2)
PART 4 Application of the Audit Process to Other Cycles
Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable	415	(24)
Learning Objectives	415	(15)
Accounts and Classes of Transactions in the Acquisition and Payment Cycle	416	(1)
Business Functions in the Cycle and Related Documents and Records	417	(1)
How E-Commerce Affects the Acquisition and Payment Cycle	418	(1)
Methodology for Designing Tests of Controls and Substantive Tests of Transactions	418	(4)
Methodology for Designing Tests of Details of Balances for Accounts Payable	422	(8)
Summary	430	(1)
Essential Terms	430	(1)
Review Questions	430	(1)
Multiple Choice Questions from CPA Examinations	431	(1)
Discussion Questions and Problems	432	(5)
Internet Problem 14-1: Managing the Accounts Payable Function	437	(2)
Completing Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts	439	(20)
Learning Objectives	439	(13)
Types of Other Accounts in the Acquisition and Payment Cycle	440	(1)
Audit of property, Plant, and Equipment	440	(6)
Audit of prepaid Expenses	446	(2)
Audit of Accrued Liabilities	448	(1)
Audit of Income and Expense Accounts	449	(3)
Summary	452	(1)
Essential Terms	452	(1)
Review Questions	452	(1)
Multiple Choice Questions and CPA Examinations	453	(1)
Discussion Questions and Problems	454	(2)
Case	456	(1)
Internet Problem 15-1: Managing Fixed Assets	457	(2)
Audit of the Inventory and Warehousing Cycle	459	(26)
Learning Objectives	459	(16)
Business Functions in the Cycle and Related Documents and Records	460	(2)
How E-Commerce Affects Inventory Management	462	(1)
Parts of the Audit of Inventory	462	(2)
Audit of Cost Accounting	464	(2)
Analytical Procedures	466	(1)
Methodology for Designing Tests of Details of Balances	467	(1)
Physical Observation of Inventory	467	(3)
Audit of pricing and Compilation	470	(3)
Integration of the Tests	473	(2)
Summary	475	(1)
Essential Terms	475	(1)
Review Questions	476	(1)
Multiple Choice Questions from CPA Examinations	477	(1)
Discussion Questions and Problems	478	(4)
Case	482	(1)
Internet Problem 16-1: Using Inventory Count Specialists	483	(2)
Audit of Cash Balances	485	(20)
Learning Objectives	485	(13)
Cash in the Bank and Transaction Cycles	486	(1)
Types of Cash Accounts	487	(1)
Audit of the General Cash Account	488	(6)
Fraud-Oriented Procedures	494	(3)
Audit of the Imprest Payroll Bank Account	497	(1)
Audit of Imprest Petty Cash	497	(1)
Summary	498	(1)
Essential Terms	498	(1)
Review Questions	499	(1)
Multiple Choice Questions from CPA Examinations	500	(1)
Discussion Questions and Problems	500	(3)
Internet Problem 17-1: Electronic Money	503	(2)
PART 5 Completing the Audit
Completing the Audit	505	(28)
Learning Objectives	505	(18)
Review for Contingent Liabilities and Commitments	506	(4)
Review for Subsequent Events	510	(3)
Final Evidence Accumulation	513	(3)
Evaluate Results	516	(4)
Issue the Audit Report	520	(1)
Communicate with the Audit Committee and Management	521	(1)
Subsequent Discovery of Facts	522	(1)
Essential Terms	523	(1)
Review Questions	524	(1)
Multiple Choice Questions from CPA Examinations	525	(2)
Discussion Questions and Problems	527	(3)
Case	530	(1)
Internet Problem 18-1: Subsequent Events	531	(2)
Index	533