Auditing and Assurance Services: An Integrated Approach

by: Arens, Alvin A; Elder, Randal J; Beasley, Mark

ISBN 13:
9780131867123
ISBN 10:
0131867121
Edition: 11th
Format: Hardcover
Copyright: 01/01/2006
Publisher: Prentice Hall
Newer Edition

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Summary

Theundisputed #1 market leading bookcontinues to be an innovative look at the most current changes and happenings in the auditing profession! Topics appear as they would during the audit planning and execution stage rather than as isolated pieces of information.Fraud detection; integration of SECTION 404 of the Sarbanes-Oxley Act of 2002 and related SEC and PCAOB rulemakings; internal controls -- Internal Control and Control Risk.For individuals interested in the auditing, accounting, and consulting fields.

Preface

xii

PART 1 The Auditing Profession

The Demand for Audit and Other Assurance Services

(22)

Learning Objectives

(15)

Nature of Auditing

(2)

Distinction Between Auditing and Accounting

(1)

Economic Demand for Auditing

(2)

Assurance Services

(6)

Types of Audits

(1)

Types of Auditors

(2)

Certified Public Accountant

(1)

Summary

(1)

Essential Terms

(1)

Review Questions

(1)

Multiple Choice Questions from CPA Examinations

(1)

Discussion Questions and Problems

(3)

Internet Problem 1-1: Assurance Services

(2)

The CPA Profession

(20)

Learning Objectives

(14)

Certified Public Accounting Firms

(1)

Activities of CPA Firms

(1)

Structure of CPA Firms

(2)

Sarbanes--Oxley Act and Public Company Accounting Oversight Board

(1)

Securities and Exchange Commission

(1)

American Institute of Certified Public Accountants (AICPA)

(1)

Generally Accepted Auditing Standards

(3)

Statements on Auditing Standards

(1)

International Standards on Auditing

(1)

Quality Control

(2)

Summary

(1)

Essential Terms

(1)

Review Questions

(1)

Multiple Choice Questions from CPA Examinations

(1)

Discussion Questions and Problems

(2)

Internet Problem 2-1: CPA Vision Project

(1)

Audit Reports

(28)

Learning Objectives

(19)

Standard Unqualified Audit Report

(3)

Combined Reports on Financial Statements and Internal Control Over Financial Reporting

(2)

Unqualified Audit Report with Explanatory Paragraph or Modified Wording

(3)

Departures from an Unqualified Audit Report

(2)

Materiality

(2)

Discussion of Conditions Requiring a Departure

(4)

Auditor's Decision Process for Audit Reports

(2)

Impact of E-Commerce on Audit Reporting

(1)

Summary

(1)

Essential Terms

(1)

Review Questions

(1)

Multiple Choice Questions from CPA Examinations

(1)

Discussion Questions and Problems

(5)

Internet Problem 3-1: Research Annual Reports

(1)

Professional Ethics

(34)

Learning Objectives

(26)

What Are Ethics?

(1)

Ethical Dilemmas

(3)

Special Need for Ethical Conduct in Professions

(2)

Code of Professional Conduct

(3)

Independence

(3)

Independence Rule of Conduct and Interpretations

(4)

Other Rules of Conduct

(7)

Enforcement

(2)

Summary

(1)

Essential Terms

(1)

Review Questions

(1)

Multiple Choice Questions from CPA Examinations

(2)

Discussion Questions and Problems

101

(3)

Cases

104

(2)

Internet Problem 4-1: AICPA Code of Professional Conduct---Ethics Rulings and Case

106

(1)

Legal Liability

107

(26)

Learning Objectives

107

(18)

Changed Legal Environment

108

(1)

Distinction Among Business Failure, Audit Failure, and Audit Risk

109

(1)

Legal Concepts Affecting Liability

110

(2)

Liability to Clients

112

(2)

Liability to Third Parties Under Common Law

114

(3)

Civil Liability Under the Federal Securities Laws

117

(4)

Criminal Liability

121

(1)

The Profession's Response to Legal Liability

122

(2)

Protecting Individual CPAs from Legal Liability

124

(1)

Summary

125

(1)

Essential Terms

125

(1)

Review Questions

126

(1)

Multiple Choice Questions from CPA Examinations

127

(1)

Discussion Questions and Problems

128

(3)

Case

131

(1)

Internet Problem 5-1: SEC Enforcement

131

(2)

PART 2 The Audit Process

Audit Responsibilities and Objectives

133

(28)

Learning Objectives

133

(20)

Objective of Conducting an Audit of Financial Statements

134

(1)

Management's Responsibilities

135

(1)

Auditor's Responsibilities

136

(3)

Financial Statement Cycles

139

(5)

Setting Audit Objectives

144

(2)

Transaction-Related Audit Objectives

146

(2)

Balance-Related Audit Objectives

148

(2)

How Audit Objectives Are Met

150

(2)

Summary

152

(1)

Essential Terms

153

(1)

Review Questions

153

(1)

Multiple Choice Questions from CPA Examinations

154

(1)

Discussion Questions and Problems

155

(4)

Case

159

(1)

Internet Problem 6-1: Assertions and Evidence Associated with New Assurance Services

160

(1)

Audit Evidence

161

(32)

Learning Objectives

161

(22)

Nature of Evidence

162

(1)

Audit Evidence Decisions

163

(1)

Persuasiveness of Evidence

164

(3)

Types of Audit Evidence

167

(7)

Audit Documentation

174

(9)

Summary of Audit Documentation

183

(1)

Essential Terms

183

(1)

Review Questions

184

(1)

Multiple Choice Questions from CPA Examinations

185

(1)

Discussion Questions and Problems

186

(3)

Cases

189

(3)

Internet Problem 7-1: Electronic Evidence

192

(1)

Audit Planning and Analytical Procedures

193

(38)

Learning Objectives

193

(24)

Planning

194

(1)

Accept Client and Perform Initial Audit Planning

194

(5)

Understand the Client's Business and Industry

199

(5)

Assess Client Business Risk

204

(1)

Perform Preliminary Analytical Procedures

205

(2)

Summary of the Purposes of Audit Planning

207

(1)

Analytical Procedures

208

(1)

Five Types of Analytical Procedures

209

(6)

Common Financial Ratios

215

(2)

Summary of Analytical Procedures

217

(1)

Essential Terms

217

(1)

Review Questions

217

(1)

Multiple Choice Questions from CPA Examinations

218

(2)

Discussion Questions and Problems

220

(4)

Cases

224

(3)

Integrated Case Application---Pinnacle Manufacturing: Part I

227

(2)

Internet Problem 8-1: Industry Research and Client Acceptance

229

(1)

Internet Problem 8-2: Obtain Client Background Information

229

(2)

Materiality and Risk

231

(38)

Learning Objectives

231

(24)

Materiality

232

(1)

Set Preliminary Judgment about Materiality

233

(3)

Allocate Preliminary Judgment about Materiality to Segments (Tolerable Misstatement)

236

(2)

Estimate Misstatement and Compare with Preliminary Judgment

238

(1)

Risk

239

(2)

Types of Risks

241

(2)

Assessing Acceptable Audit Risk

243

(2)

Assessing Inherent Risk

245

(3)

Relationship of Risks to Evidence and Factors Influencing Risks

248

(4)

Evaluating Results

252

(3)

Essential Terms

255

(1)

Review Questions

255

(1)

Multiple Choice Questions from CPA Examinations

256

(2)

Discussion Questions and Problems

258

(5)

Cases

263

(3)

Integrated Case Application---Pinnacle Manufacturing: Part II

266

(1)

Internet Problem 9-1: Materiality and Tolerable Misstatement

267

(2)

Section 404 Audits of Internal Control and Control Risk

269

(44)

Learning Objectives

269

(31)

Internal Control Objectives

270

(1)

Management and Auditor Responsibilities Related to Internal Control

271

(3)

COSO Components of Internal Control

274

(9)

Obtain and Document Understanding of Internal Control

283

(4)

Assess Control Risk

287

(5)

Tests of Controls

292

(3)

Decide Planned Detection Risk and Design Substantive Tests

295

(1)

Section 404 Reporting on Internal Control

295

(2)

Evaluating, Reporting, and Testing Internal Control for Nonpublic Company

297

(2)

Summary

299

(1)

Essential Terms

300

(1)

Review Questions

301

(2)

Multiple Choice Questions from CPA Examinations

303

(1)

Discussion Questions and Problems

304

(5)

Case

309

(1)

Integrated Case Application---Pinnacle Manufacturing: Part III

310

(2)

Internet Problem 10-1: Corporate Governance

312

(1)

Fraud Auditing

313

(32)

Learning Objectives

313

(24)

Types of Fraud

314

(1)

Conditions for Fraud

315

(4)

Assessing the Risk of Fraud

319

(3)

Corporate Governance Oversight to Reduce Fraud Risks

322

(5)

Responding to the Risk of Fraud

327

(2)

Specific Fraud Risk Areas

329

(5)

Responsibilities when Fraud is Suspected

334

(3)

Summary

337

(1)

Essential Terms

337

(1)

Review Questions

338

(1)

Multiple Choice Questions from CPA Examinations

338

(2)

Discussion Questions and Problems

340

(2)

Case

342

(1)

Internet Problem 11-1: Fraud Best Practices

343

(2)

The Impact of Information Technology on the Audit Process

345

(30)

Learning Objectives

345

(19)

How Information Technologies Enhance Internal Control

346

(1)

Assessing Risks of Information Technology

347

(1)

Internal Controls Specific to Information Technology

348

(6)

Impact of Information Technology on the Audit Process

354

(5)

Issues for Different IT Environments

359

(4)

Summary

363

(1)

Essential Terms

364

(1)

Review Questions

364

(1)

Multiple Choice Questions from CPA Examinations

365

(1)

Discussion Questions and Problems

366

(5)

Case

371

(2)

Internet Problem 12-1: COBIT

373

(2)

Overall Audit Plan and Audit Program

375

(34)

Learning Objectives

375

(23)

Types of Tests

376

(4)

Selecting Which Types of Tests to Perform

380

(3)

Impact of Information Technology on Audit Testing

383

(1)

Evidence Mix

384

(1)

Design of the Audit Program

385

(9)

Summary of Key Evidence-Related Terms

394

(1)

Summary of the Audit Process

395

(3)

Essential Terms

398

(1)

Review Questions

398

(1)

Multiple Choice Questions from CPA Examinations

399

(2)

Discussion Questions and Problems

401

(4)

Cases

405

(2)

Internet Problem 13-1: Assessing Effects of Evidence Mix

407

(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

409

(34)

Learning Objectives

409

(23)

Accounts and Classes of Transactions in the Sales and Collection Cycle

410

(1)

Business Functions in the Cycle and Related Documents and Records

411

(5)

Methodology for Designing Tests of Controls and Substantive Tests of Transactions for Sales

416

(9)

Sales Returns and Allowances

425

(1)

Methodology for Designing Tests of Controls and Substantive Tests of Transactions for Cash Receipts

426

(4)

Audit Tests for Uncollectible Accounts

430

(1)

Additional Internal Controls over Account Balances

431

(1)

Effect of Results of Tests of Controls and Substantive Tests of Transactions

431

(1)

Summary

432

(1)

Essential Terms

432

(1)

Review Questions

433

(1)

Multiple Choice Questions from CPA Examinations

434

(1)

Discussion Questions and Problems

435

(5)

Case

440

(1)

Integrated Case Application---Pinnacle Manufacturing: Part IV

441

(1)

Internet Problem 14-1: Electronic Signatures

441

(2)

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

443

(40)

Learning Objectives

443

(29)

Representative Samples

444

(1)

Statistical Versus Nonstatistical Sampling and Probabilistic Versus Nonprobabilistic Sample Selection

445

(1)

Nonprobabilistic Sample Selection Methods

446

(1)

Probabilistic Sample Selection Methods

447

(2)

Sampling for Exception Rates

449

(2)

Application of Nonstatistical Audit Sampling

451

(15)

Statistical Audit Sampling

466

(1)

Sampling Distribution

466

(1)

Application of Attributes Sampling

467

(5)

Essential Terms

472

(1)

Review Questions

473

(1)

Multiple Choice Questions from CPA Examinations

474

(1)

Discussion Questions and Problems

475

(4)

Case

479

(1)

Integrated Case Application---Pinnacle Manufacturing: Part V

479

(2)

Internet Problem 15-1: Sampling for U.S. Census

481

(2)

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

483

(36)

Learning Objectives

483

(22)

Methodology for Designing Tests of Details of Balances

484

(7)

Designing Tests of Details of Balances

491

(6)

Confirmation of Accounts Receivable

497

(5)

Developing Tests of Details Audit Program

502

(3)

Essential Terms

505

(1)

Review Questions

505

(1)

Multiple Choice Questions from CPA Examinations

506

(1)

Discussion Questions and Problems

507

(6)

Case

513

(1)

Integrated Case Application---Pinnacle Manufacturing: Part VI

513

(1)

Internet Problem 16-1: Revenue Recognition

514

(5)

Audit Sampling for Tests of Details of Balances

519

(40)

Learning Objectives

519

(31)

Comparisons of Audit Sampling for Tests of Details of Balances and for Tests of Controls and Substantive Tests of Transactions

520

(1)

Nonstatistical Sampling

520

(9)

Monetary Unit Sampling

529

(10)

Variables Sampling

539

(5)

Illustration Using Difference Estimation

544

(6)

Essential Terms

550

(1)

Review Questions

550

(2)

Multiple Choice Questions from CPA Examinations

552

(1)

Discussion Questions and Problems

553

(3)

Cases

556

(1)

Internet Problem 17-1: Audit Sampling Strategies

557

(2)

PART 4 Application of the Audit Process to Other Cycles

Audit of the Payroll and Personnel Cycle

559

(22)

Learning Objectives

559

(14)

Accounts and Transactions in the Payroll and Personnel Cycle

560

(1)

Business Functions in the Cycle and Related Documents and Records

560

(4)

Methodology for Designing Tests of Controls and Substantive Tests of Transactions

564

(5)

Methodology for Designing Tests of Details of Balances

569

(4)

Summary

573

(1)

Essential Terms

573

(1)

Review Questions

573

(1)

Multiple Choice Questions from CPA Examinations

574

(1)

Discussion Questions and Problems

575

(3)

Case

578

(1)

Internet Problem 18-1: Outsourcing the Payroll Function

579

(2)

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

581

(30)

Learning Objectives

581

(19)

Accounts and Classes of Transactions in the Acquisition and Payment Cycle

582

(1)

Business Functions in the Cycle and Related Documents and Records

582

(4)

How E-Commerce Affects the Acquisition and Payment Cycle

586

(1)

Methodology for Designing Tests of Controls and Substantive Tests of Transactions

586

(6)

Methodology for Designing Tests of Details of Balances for Accounts Payable

592

(7)

Summary

599

(1)

Essential Terms

600

(1)

Review Questions

601

(1)

Multiple Choice Questions from CPA Examinations

602

(1)

Discussion Questions and Problems

603

(5)

Case

608

(2)

Internet Problem 19-1: Managing the Accounts Payable Function

610

(1)

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

611

(26)

Learning Objectives

611

(17)

Types of Other Accounts in the Acquisition and Payment Cycle

612

(1)

Audit of Property, Plant, and Equipment

612

(8)

Audit of Prepaid Expenses

620

(2)

Audit of Accrued Liabilities

622

(2)

Audit of Income and Expense Accounts

624

(4)

Summary

628

(1)

Essential Terms

628

(1)

Review Questions

628

(1)

Multiple Choice Questions from CPA Examinations

629

(1)

Discussion Questions and Problems

630

(2)

Cases

632

(2)

Internet Problem 20-1: Managing Fixed Assets

634

(3)

Audit of the Inventory and Warehousing Cycle

637

(28)

Learning Objectives

637

(19)

Business Functions in the Cycle and Related Documents and Records

638

(3)

How E-Commerce Affects Inventory Management

641

(1)

Parts of the Audit of Inventory

641

(2)

Audit of Cost Accounting

643

(3)

Analytical Procedures

646

(1)

Methodology for Designing Tests of Details of Balances

646

(2)

Physical Observation of Inventory

648

(3)

Audit of Pricing and Compilation

651

(3)

Integration of the Tests

654

(1)

Summary

655

(1)

Essential Terms

656

(1)

Review Questions

656

(1)

Multiple Choice Questions from CPA Examinations

657

(1)

Discussion Questions and Problems

658

(5)

Case

663

(1)

Internet Problem 21-1: Using Inventory Count Specialists

664

(1)

Audit of the Capital Acquisition and Repayment Cycle

665

(20)

Learning Objectives

665

(14)

Accounts in the Cycle

666

(2)

Notes Payable

668

(5)

Owners' Equity

673

(5)

E-Commerce and Capital Acquisition

678

(1)

Summary

679

(1)

Essential Terms

679

(1)

Review Questions

679

(1)

Multiple Choice Questions from CPA Examinations

680

(1)

Discussion Questions and Problems

681

(3)

Internet Problem 22-1: Stock Exchange Requirements

684

(1)

Audit of Cash Balances

685

(26)

Learning Objectives

685

(17)

Cash in the Bank and Transaction Cycles

686

(2)

Types of Cash Accounts

688

(1)

Audit of the General Cash Account

689

(7)

Fraud-Oriented Procedures

696

(5)

Audit of the Imprest Payroll Bank Account

701

(1)

Audit of Imprest Petty Cash

701

(1)

Summary

702

(1)

Essential Terms

702

(1)

Review Questions

703

(1)

Multiple Choice Questions from CPA Examinations

704

(1)

Discussion Questions and Problems

704

(4)

Case

708

(1)

Internet Problem 23-1: Electronic Money

709

(2)

PART 5 Completing the Audit

Completing the Audit

711

(30)

Learning Objectives

711

(20)

Review for Contingent Liabilities and Commitments

712

(5)

Review for Subsequent Events

717

(3)

Final Evidence Accumulation

720

(3)

Evaluate Results

723

(5)

Issue the Audit Report

728

(1)

Communicate with the Audit Committee and Management

728

(2)

Subsequent Discovery of Facts

730

(1)

Essential Terms

731

(1)

Review Questions

732

(1)

Multiple Choice Questions from CPA Examinations

733

(2)

Discussion Questions and Problems

735

(3)

Case

738

(1)

Internet Problem 24-1: Subsequent Events

739

(2)

PART 6 Other Assurance and Nonassurance Services

Other Assurance Services

741

(28)

Learning Objectives

741

(20)

Attestation Engagements

742

(5)

SysTrust Services

747

(1)

Prospective Financial Statements

747

(3)

Agreed-Upon Procedures Engagements

750

(1)

Review and Compilation Services

750

(5)

Review of Interim Financial Information for Public Companies

755

(1)

Other Audits or Limited Assurance Engagements

756

(5)

Summary

761

(1)

Essential Terms

761

(1)

Review Questions

761

(1)

Multiple Choice Questions from CPA Examinations

762

(2)

Discussion Questions and Problems

764

(4)

Internet Problem 25-1: Reporting on Quarterly Financial Information

768

(1)

Internal and Governmental Financial Auditing and Operational Auditing

769

(24)

Learning Objectives

769

(15)

Internal Financial Auditing

771

(2)

Governmental Financial Auditing

773

(3)

Operational Auditing

776

(8)

Summary

784

(1)

Essential Terms

784

(1)

Review Questions

785

(1)

Multiple Choice Questions from CPA, IIA, and CMA Examinations

786

(2)

Cases

788

(3)

Internet Problem 26-1: Institute of Internal Auditors

791

(2)

Index

793

Auditing and Assurance Services: An Integrated Approach

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0131867121

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Auditing and Assurance Services: An Integrated Approach

9780131867123

0131867121

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