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| Auditing and Assurance Services: An Integrated Approach: Global Edition, 13/E |
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Alvin A Arens
Randal J Elder
Mark S Beasley
Publisher: Pearson Higher Education
Copyright: 2010
Format: Paper; 872 pp
| ISBN-10: | 0132458934 | | | ISBN-13: | 9780132458931 | |
Our Price: £53.99
Status: Instock
Published: 02 Apr 2009
This title is not for sale to the US or Canada.
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Table of Contents
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Preface xi
PART 1 The Auditing Profession
1. The Demand for Audit and Other Assurance Services 3
Learning Objectives 3
Nature of Auditing 4
Distinction Between Auditing and Accounting 6
Economic Demand for Auditing 6
Assurance Services 8
Types of Audits 13
Types of Auditors 15
Certified Public Accountant 17
Summary 18
Essential Terms 18
Review Questions 19
Multiple Choice Questions from CPA Examinations 20
Discussion Questions and Problems 21
Internet Problem 1-1: Sarbanes–Oxley Act Internal Control Reporting
Requirements 24
2. The CPA Profession 25
Learning Objectives 25
Certified Public Accounting Firms 26
Activities of CPA Firms 27
Structure of CPA Firms 28
Sarbanes–Oxley Act and Public Company Accounting Oversight
Board 30
Securities and Exchange Commission 31
American Institute of Certified Public Accountants (AICPA) 32
Generally Accepted Auditing Standards 33
Statements on Auditing Standards 36
International Standards on Auditing 37
Quality Control 37
Summary 39
Essential Terms 40
Review Questions 41
Multiple Choice Questions from CPA Examinations 41
Discussion Questions and Problems 43
Internet Problem 2-1: International Auditing and Assurance
Standards Board 44
3. Audit Reports 45
Learning Objectives 45
Standard Unqualified Audit Report 46
Combined Reports on Financial Statements and Internal Control Over
Financial Reporting Under Section 404 of the Sarbanes–Oxley
Act 49
Unqualified Audit Report with Explanatory Paragraph or Modified
Wording 51
Departures from an Unqualified Audit Report 55
Materiality 56
Discussion of Conditions Requiring a Departure 59
Auditor’s Decision Process for Audit Reports 63
Impact of E-Commerce on Audit Reporting 65
Summary 65
Essential Terms 66
Review Questions 66
Multiple Choice Questions from CPA Examinations 67
Discussion Questions and Problems 69
Internet Problem 3-1: Research Annual Reports 74
4. Professional Ethics 75
Learning Objectives 75
What Are Ethics? 76
Ethical Dilemmas 77
Special Need for Ethical Conduct in Professions 80
Code of Professional Conduct 81
Independence 85
Independence Rule of Conduct and Interpretations 88
Other Rules of Conduct 93
Enforcement 100
Summary 100
Essential Terms 102
Review Questions 102
Multiple Choice Questions from CPA Examinations 103
Discussion Questions and Problems 104
Cases 107
Internet Problem 4-1: PCAOB Disciplinary Actions 110
5. Legal Liability 111
Learning Objectives 111
Changed Legal Environment 112
Distinguishing Business Failure, Audit Failure, and Audit Risk 113
Legal Concepts Affecting Liability 114
Liability to Clients 116
Liability to Third Parties Under Common Law 119
Civil Liability Under the Federal Securities Laws 121
Criminal Liability 125
The Profession’s Response to Legal Liability 127
Protecting Individual CPAs from Legal Liability 128
Summary 129
Essential Terms 130
Review Questions 131
Multiple Choice Questions from CPA Examinations 131
Discussion Questions and Problems 133
Case 137
Internet Problem 5-1: SEC Enforcement 137
PART 2 The Audit Process
6. Audit Responsibilities and Objectives 139
Learning Objectives 139
Objective of Conducting an Audit of Financial Statements 140
Management’s Responsibilities 141
Auditor’s Responsibilities 142
Financial Statement Cycles 146
Setting Audit Objectives 150
Management Assertions 151
Transaction-Related Audit Objectives 154
Balance-Related Audit Objectives 156
Presentation and Disclosure-Related Audit Objectives 159
How Audit Objectives Are Met 159
Summary 162
Essential Terms 162
Review Questions 163
Multiple Choice Questions from CPA Examinations 164
Discussion Questions and Problems 165
Case 169
Internet Problem 6-1: International and PCAOB Audit
Objectives 170
7. Audit Evidence 171
Learning Objectives 171
Nature of Evidence 172
Audit Evidence Decisions 173
Persuasiveness of Evidence 174
Types of Audit Evidence 177
Audit Documentation 185
Summary 194
Essential Terms 195
Review Questions 196
Multiple Choice Questions from CPA Examinations 197
Discussion Questions and Problems 198
Cases 203
ACL Problem 205
Internet Problem 7-1: Use of Audit Software for Fraud Detection and
Data Quality Assurance 205
8. Audit Planning and Analytical Procedures 207
Learning Objectives 207
Planning 208
Accept Client and Perform Initial Audit Planning 209
Understand the Client’s Business and Industry 214
Assess Client Business Risk 218
Perform Preliminary Analytical Procedures 220
Summary of the Parts of Audit Planning 221
Analytical Procedures 223
Five Types of Analytical Procedures 224
Common Financial Ratios 230
Summary 232
Essential Terms 232
Review Questions 232
Multiple Choice Questions from CPA Examinations 234
Discussion Questions and Problems 236
Cases 241
Integrated Case Application—Pinnacle Manufacturing: Part I 243
ACL Problem 246
Internet Problem 8-1: Obtain Client Background Information 246
9. Materiality and Risk 247
Learning Objectives 247
Materiality 248
Set Preliminary Judgment about Materiality 249
Allocate Preliminary Judgment about Materiality to Segments
(Tolerable Misstatement) 252
Estimate Misstatement and Compare with Preliminary Judgment 255
Risk 257
Types of Risks 259
Assessing Acceptable Audit Risk 261
Assessing Inherent Risk 263
Relationship of Risks to Evidence and Factors Influencing Risks 266
Evaluating Results 271
Summary 273
Essential Terms 274
Review Questions 275
Multiple Choice Questions from CPA Examinations 276
Discussion Questions and Problems 277
Cases 283
Integrated Case Application—Pinnacle Manufacturing: Part II 287
Internet Problem 9-1: Materiality and Tolerable Misstatement 288
10. Section 404 Audits of Internal Control and Control Risk 289
Learning Objectives 289
Internal Control Objectives 290
Management and Auditor Responsibilities for Internal Control 291
COSO Components of Internal Control 294
Obtain and Document Understanding of Internal Control 303
Assess Control Risk 307
Tests of Controls 313
Decide Planned Detection Risk and Design Substantive Tests 315
Section 404 Reporting on Internal Control 316
Evaluating, Reporting, and Testing Internal Control for Nonpublic
Companies 318
Summary 321
Essential Terms 321
Review Questions 324
Multiple Choice Questions from CPA Examinations 326
Discussion Questions and Problems 328
Case 333
Integrated Case Application—Pinnacle Manufacturing: Part III 334
Internet Problem 10-1: Disclosure of Material Weaknesses in Internal
Control Over Financial Reporting 335
11. Fraud Auditing 337
Learning Objectives 337
Types of Fraud 338
Conditions for Fraud 340
Assessing the Risk of Fraud 343
Corporate Governance Oversight to Reduce Fraud Risks 346
Responding to the Risk of Fraud 351
Specific Fraud Risk Areas 353
Responsibilities when Fraud is Suspected 358
Summary 362
Essential Terms 363
Review Questions 363
Multiple Choice Questions from CPA Examinations 364
Discussion Questions and Problems 365
Case 369
ACL Problem 370
Internet Problem 11-1: Brainstorming About Fraud Risks 370
12. The Impact of Information Technology on the Audit Process 371
Learning Objectives 371
How Information Technologies Improve Internal Control 372
Assessing Risks of Information Technology 372
Internal Controls Specific to Information Technology 374
Impact of Information Technology on the Audit Process 380
Issues for Different IT Environments 387
Summary 390
Essential Terms 390
Review Questions 392
Multiple Choice Questions from CPA Examinations 392
Discussion Questions and Problems 394
Case 400
ACL Problem 401
Internet Problem 12-1: Assessing IT Governance 402
13. Overall Audit Plan and Audit Program 403
Learning Objectives 403
Types of Tests 404
Selecting Which Types of Tests to Perform 409
Impact of Information Technology on Audit Testing 412
Evidence Mix 413
Design of the Audit Program 414
Summary of Key Evidence-Related Terms 424
Summary of the Audit Process 425
Essential Terms 429
Review Questions 429
Multiple Choice Questions from CPA Examinations 431
Discussion Questions and Problems 433
Cases 438
Internet Problem 13-1: Assessing Effects of Evidence Mix 440
PART 3 Application of the Audit Process to the Sales and Collection Cycle
14. Audit of the Sales and Collection Cycle: Tests of Controls and
Substantive Tests of Transactions 443
Learning Objectives 443
Accounts and Classes of Transactions in the Sales and Collection
Cycle 444
Business Functions in the Cycle and Related Documents and
Records 445
Methodology for Designing Tests of Controls and Substantive Tests of
Transactions for Sales 450
Sales Returns and Allowances 460
Methodology for Designing Tests of Controls and Substantive Tests of
Transactions for Cash Receipts 461
Audit Tests for the Write-off of Uncollectible Accounts 465
Additional Internal Controls over Account Balances and
Presentation and Disclosure 466
Effect of Results of Tests of Controls and Substantive Tests of
Transactions 466
Summary 467
Essential Terms 468
Review Questions 468
Multiple Choice Questions from CPA Examinations 469
Discussion Questions and Problems 471
Case 477
Integrated Case Application—Pinnacle Manufacturing: Part IV 478
ACL Problem 479
Internet Problem 14-1: Point of Sales Systems Controls 479
15. Audit Sampling for Tests of Controls and Substantive Tests of
Transactions 481
Learning Objectives 481
Representative Samples 482
Statistical Versus Nonstatistical Sampling and Probabilistic Versus
Nonprobabilistic Sample Selection 483
Nonprobabilistic Sample Selection Methods 484
Probabilistic Sample Selection Methods 485
Sampling for Exception Rates 488
Application of Nonstatistical Audit Sampling 489
Statistical Audit Sampling 505
Sampling Distribution 505
Application of Attributes Sampling 506
Summary 512
Essential Terms 512
Review Questions 513
Multiple Choice Questions from CPA Examinations 514
Discussion Questions and Problems 516
Case 520
Integrated Case Application—Pinnacle Manufacturing: Part V 521
Internet Problem 15-1: Applying Statistical Sampling 523
16. Completing the Tests in the Sales and Collection Cycle: Accounts
Receivable 525
Learning Objectives 525
Methodology for Designing Tests of Details of Balances 526
Designing Tests of Details of Balances 533
Confirmation of Accounts Receivable 539
Developing Tests of Details Audit Program 545
Essential Terms 548
Review Questions 549
Multiple Choice Questions from CPA Examinations 550
Discussion Questions and Problems 552
Case 557
Integrated Case Application—Pinnacle Manufacturing: Part VI 558
ACL Problem 560
Internet Problem 16-1: Revenue Recognition 560
17. Audit Sampling for Tests of Details of Balances 565
Learning Objectives 565
Comparisons of Audit Sampling for Tests of Details of Balances and for
Tests of Controls and Substantive Tests of Transactions 566
Nonstatistical Sampling 567
Monetary Unit Sampling 576
Variables Sampling 586
Illustration Using Difference Estimation 592
Summary 598
Essential Terms 599
Review Questions 599
Multiple Choice Questions from CPA Examinations 601
Discussion Questions and Problems 602
Cases 606
Internet Problem 17-1: Monetary Unit Sampling Considerations 607
PART 4 Application of the Audit Process to Other Cycles
18. Audit of the Payroll and Personnel Cycle 609
Learning Objectives 609
Accounts and Transactions in the Payroll and Personnel Cycle 610
Business Functions in the Cycle and Related Documents and
Records 610
Methodology for Designing Tests of Controls and Substantive Tests of
Transactions 614
Methodology for Designing Tests of Details of Balances 619
Summary 623
Essential Terms 624
Review Questions 624
Multiple Choice Questions from CPA Examinations 625
Discussion Questions and Problems 627
Case 631
Internet Problem 18-1: Accounts Payable Fraud 632
19. Audit of the Acquisition and Payment Cycle: Tests of Controls,
Substantive Tests of Transactions, and Accounts Payable 633
Learning Objectives 633
Accounts and Classes of Transactions in the Acquisition and Payment
Cycle 634
Business Functions in the Cycle and Related Documents and
Records 634
How E-Commerce Affects the Acquisition and Payment Cycle 638
Methodology for Designing Tests of Controls and Substantive Tests
of Transactions 639
Methodology for Designing Tests of Details of Balances for Accounts
Payable 645
Summary 653
Essential Terms 654
Review Questions 655
Multiple Choice Questions from CPA Examinations 656
Discussion Questions and Problems 657
Case 664
Internet Problem 19-1: Managing the Accounts Payable Function 666
20. Completing the Tests in the Acquisition and Payment Cycle:
Verification of Selected Accounts 667
Learning Objectives 667
Types of Other Accounts in the Acquisition and Payment Cycle 668
Audit of Property, Plant, and Equipment 668
Audit of Prepaid Expenses 677
Audit of Accrued Liabilities 679
Audit of Income and Expense Accounts 681
Summary 685
Essential Terms 685
Review Questions 685
Multiple Choice Questions from CPA Examinations 686
Discussion Questions and Problems 688
Cases 691
Internet Problem 20-1: Risks of Outsourcing the Payroll
Function 693
21. Audit of the Inventory and Warehousing Cycle 695
Learning Objectives 695
Business Functions in the Cycle and Related Documents and
Records 696
How E-Commerce Affects Inventory Management 698
Parts of the Audit of Inventory 699
Audit of Cost Accounting 701
Analytical Procedures 704
Methodology for Designing Tests of Details of Balances 705
Physical Observation of Inventory 706
Audit of Pricing and Compilation 709
Integration of the Tests 713
Summary 714
Essential Terms 715
Review Questions 715
Multiple Choice Questions from CPA Examinations 716
Discussion Questions and Problems 718
Case 724
Internet Problem 21-1: Using Inventory Count Specialists 725
22. Audit of the Capital Acquisition and Repayment Cycle 727
Learning Objectives 727
Accounts in the Cycle 728
Notes Payable 730
Owners’ Equity 735
Summary 741
Essential Terms 741
Review Questions 741
Multiple Choice Questions from CPA Examinations 743
Discussion Questions and Problems 743
Internet Problem 22-1: Stock Exchange Requirements 748
23. Audit of Cash Balances 749
Learning Objectives 749
Cash in the Bank and Transaction Cycles 750
Types of Cash Accounts 752
Audit of the General Cash Account 753
Fraud-Oriented Procedures 760
Audit of the Imprest Payroll Bank Account 765
Audit of Imprest Petty Cash 765
Summary 766
Essential Terms 766
Review Questions 767
Multiple Choice Questions from CPA Examinations 768
Discussion Questions and Problems 769
Case 772
Internet Problem 23-1: Automated Clearing House System for
Electronic Funds Transfers 774
PART 5 Completing the Audit
24. Completing the Audit 777
Learning Objectives 777
Perform Additional Tests for Presentation and Disclosure 778
Review for Contingent Liabilities and Commitments 779
Review for Subsequent Events 784
Final Evidence Accumulation 788
Evaluate Results 791
Issue the Audit Report 796
Communicate with the Audit Committee and Management 796
Subsequent Discovery of Facts 798
Summary 799
Essential Terms 799
Review Questions 800
Multiple Choice Questions from CPA Examinations 801
Discussion Questions and Problems 803
Case 807
Internet Problem 24-1: Audit Committee Responsibilities 807
PART 6 Other Assurance and Nonassurance Services
25. Other Assurance Services 809
Learning Objectives 809
Review and Compilation Services 810
Review of Interim Financial Information for Public Companies 814
Attestation Engagements 815
WebTrust Services 818
SysTrust Services 820
Prospective Financial Statements 820
Agreed-Upon Procedures Engagements 823
Other Audits or Limited Assurance Engagements 823
Summary 827
Essential Terms 827
Review Questions 828
Multiple Choice Questions from CPA Examinations 828
Discussion Questions and Problems 830
Internet Problem 25-1: Accounting and Review Services
Committee 834
26. Internal and Governmental Financial Auditing and Operational
Auditing 835
Learning Objectives 835
Internal Financial Auditing 836
Governmental Financial Auditing 839
Operational Auditing 842
Summary 850
Essential Terms 850
Review Questions 851
Multiple Choice Questions from CPA, IIA, and CMA
Examinations 852
Cases 854
Internet Problem 26-1: University Internal Audit Departments 858
Appendix: ACL Installation and Instructions 859
Index 865
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