Auditing : a risk analysis approach / 5th ed.

The Auditing Profession p. 1
Auditing, Attestation, and Assurance p. 2
Overview p. 3
Auditing, Attestation, and Assurance p. 3
Auditing and Management Assertions p. 5
Emphasis on Risk-Based Audits p. 7
Why Independent Auditing Is Necessary p. 7
Independent Auditing versus Internal Auditing p. 9
Audits by Government Organizations p. 10
How Auditing Differs from Accounting p. 12
Requirements for an Effective Audit p. 13
Evaluation of Evidence p. 14
Communication of the Auditor's Findings p. 14
The Audit Process: An Overview p. 16
Other Services Performed by CPA Firms p. 20
Key Terms p. 21
Review Questions p. 21
Multiple Choice Questions from Past CPA Exams p. 22
Essay Questions and Problems p. 23
Defining Professional Responsibility: Quality Standards and Ethics p. 28
Overview p. 29
Standards Governing the Quality of Professional Accounting Services p. 29
Ethics and the Code of Professional Conduct p. 35
Codification of Professional Standards p. 47
Key Terms p. 47
Review Questions p. 48
Multiple Choice Questions from Past CPA Exams p. 48
Internet Activities p. 50
Essay Questions and Problems p. 50
Discussion Cases p. 56
Maintaining Professional Responsibility: Regulation and Legal Liability p. 59
Overview p. 60
Introduction p. 60
Self-Regulation and Quality Maintenance p. 61
Self-Regulation and the Expectations Gap p. 64
External Regulation p. 66
Auditor Liability: The Courts p. 68
Appendix p. 82
Key Terms p. 91
Review Questions p. 92
Multiple Choice Questions from Past CPA Exams p. 93
Internet Activities p. 96
Essay Questions and Problems p. 96
Discussion Case p. 100
Planning the Audit p. 105
Audit Evidence and Audit Programs p. 106
Overview p. 107
Introduction p. 107
Audit Objectives p. 107
Characteristics of Audit Evidence p. 113
Audit Evidence and Related Auditing Procedures p. 114
Audit Planning and Audit Programs p. 126
Audit Workpapers p. 129
Initial versus Recurring Audits p. 136
Key Terms p. 137
Review Questions p. 138
Multiple Choice Questions from Past CPA Exams p. 138
Internet Activities p. 140
Essay Questions and Problems p. 141
Discussion Case p. 145
Audit Planning: Assessment of Inherent Risk and Materiality p. 147
Overview p. 148
Introduction p. 148
Audit Risk Defined p. 148
Components of Audit Risk p. 151
Quantifying Audit Risk p. 152
Materiality and Its Impact on Audit Evidence p. 154
Relationship Among Audit Risk, Audit Evidence, and Materiality p. 160
Analysis of Inherent Risk p. 161
Classifying the Warning Signs p. 173
Risk Analysis Matrix p. 177
Incorporating Inherent Risk Assessment into the Audit p. 180
Key Terms p. 185
Computer Audit Practice Case p. 186
Review Questions p. 186
Multiple Choice Questions from Past CPA Exams p. 187
Internet Activities p. 190
Essay Questions and Problems p. 190
Discussion Cases p. 196
Internal Control: Concepts p. 204
Overview p. 205
Internal Control System Defined p. 205
Components of Internal Control p. 205
Another Look at Financial Controls p. 215
Inherent Limitations of Internal Control Systems p. 216
Internal Control for a Small Business p. 220
Key Terms p. 222
Review Questions p. 223
Multiple Choice Questions from Past CPA and CIA Exams p. 223
Essay Questions and Problems p. 225
Audit Planning: Assessment of Control Risk p. 232
Overview p. 233
Auditor's Assessment of Control Risk p. 233
Auditor's Approach to Assessing Control Risk p. 235
Design of Substantive Audit Programs p. 246
Summary of Audit Risk Assessment p. 249
Communication of Reportable Conditions p. 250
Appendix p. 253
Key Terms p. 287
Review Questions p. 287
Multiple Choice Questions from Past CPA and CIA Exams p. 288
Internet Activities p. 291
Essay Questions and Problems p. 291
Discussion Cases p. 300
Internal Control and Computer-Based Information Systems (CBIS) p. 302
Overview p. 303
Audit Approaches p. 303
Types of CBIS p. 306
Kinds of CBIS Controls p. 311
Techniques for Testing CBIS Controls p. 318
CBIS and Audit Risk Implications p. 327
Expert Systems as a Means of Managing Audit Risk p. 333
Key Terms p. 335
Computer Audit Practice Case p. 336
Review Questions p. 336
Multiple Choice Questions from Past CPA and CIA Exams p. 337
Essay Questions and Problems p. 341
Conducting the Audit p. 351
Statistical Sampling for Testing Control Procedures p. 352
Overview p. 353
Sampling Applications in Auditing p. 353
How Sampling Can Assist in Testing of Controls p. 353
Statistical versus Nonstatistical Sampling p. 355
Statistical Sampling and Audit Judgment p. 356
Statistical Sampling for Testing of Controls p. 356
Statistical Sampling and Audit Risk Implications p. 369
Extended Example p. 374
Key Terms p. 376
Computer Audit Practice Case p. 379
Review Questions p. 379
Multiple Choice Questions from Past CPA and CIA Exams p. 379
Essay Questions and Problems p. 383
Statistical Sampling for Substantive Testing p. 391
Overview p. 392
Introduction p. 393
Approaches to Variables Sampling p. 393
Mean per Unit (MPU) p. 394
Difference Estimation p. 402
Probability-Proportional-to-Size Sampling (PPS) p. 405
Computer-Assisted Sampling p. 412
Key Terms p. 413
Computer Audit Practice Case p. 413
Review Questions p. 413
Multiple Choice Questions from Past CPA Exams p. 414
Internet Activities p. 417
Essay Questions and Problems p. 417
Substantive Audit Testing: Revenue Cycle p. 427
Overview p. 428
Substantive Testing versus Tests of Controls p. 428
Review of the Audit Process p. 429
Overview of Substantive Testing p. 429
Use of Computers in Performing Substantive Audit Tests p. 433
Auditing the Revenue Cycle p. 435
Audit Risk Analysis and the Revenue Cycle: Some Warning Signs p. 451
Appendix p. 456
Key Terms p. 459
Computer Audit Practice Case p. 459
Review Questions p. 459
Multiple Choice Questions from Past CPA Exams p. 460
Essay Questions and Problems p. 463
Discussion Cases p. 473
Substantive Audit Testing: Expenditure Cycle p. 476
Overview p. 477
Purchases, Production, and Inventories p. 478
Plant Assets p. 487
Intangible Assets p. 493
Current Liabilities p. 495
Audit Risk Analysis and the Expenditure Cycle p. 498
Appendix p. 503
Key Terms p. 510
Computer Audit Practice Case p. 510
Review Questions p. 510
Multiple Choice Questions from Past CPA Exams p. 511
Essay Questions and Problems p. 513
Discussion Cases p. 520
Substantive Audit Testing: Financing and Investing Cycle and Completing the Audit p. 524
Overview p. 525
Introduction p. 526
Investing Transactions p. 528
Borrowing Transactions p. 531
Stockholders' Equity Transactions p. 538
Audit Risk Analysis and the Financing and Investing Cycle p. 541
Completing the Audit p. 544
Appendix p. 553
Key Terms p. 560
Computer Audit Practice Case p. 560
Review Questions p. 560
Multiple Choice Questions from Past CPA Exams p. 561
Essay Questions and Problems p. 564
Discussion Cases p. 576
Reporting the Results of the Audit p. 581
Audit Reports p. 582
Overview p. 583
Nature of the Audit Report p. 584
Components of the Audit Report p. 584
Kinds of Audit Opinions p. 586
Divided Responsibility p. 594
Explanatory Paragraph: Unqualified Opinion p. 596
Audited Statements Prepared on a Basis Other than GAAP p. 602
Other Topics Affecting Audit Reports p. 605
Key Terms p. 611
Review Questions p. 612
Multiple Choice Questions from Past CPA Exams p. 613
Internet Activities p. 617
Essay Questions and Problems p. 618
Discussion Case p. 627
Other Attestation and Assurance Services p. 629
Other Assurance Services p. 630
Overview p. 631
Changing Nature of the Assurance Function p. 631
Other Assurance Services Covered by the Auditing Standards p. 632
Services Covered by the Accounting and Review Standards p. 639
Assurance Services Covered by the Attestation Standards p. 642
Summary Table p. 653
New Types of Assurance Services and the Future of the Assurance Function p. 655
Key Terms p. 658
Review Questions p. 659
Multiple Choice Questions from Past CPA Exams p. 660
Essay Questions and Problems p. 663
Operational and Governmental Compliance Auditing p. 669
Overview p. 670
Introduction p. 670
Operational Auditing p. 671
Governmental Compliance Auditing p. 685
Appendix p. 689
Key Terms p. 691
Review Questions p. 691
Multiple Choice Questions from Past CPA and CIA Exams p. 692
Essay Questions and Problems p. 695
Biltrite Bicycles, Inc.: A Computerized Audit Practice Case p. 703
Description of the Practice Case p. 703
Assessment of Inherent Risk p. 714
Assessment of Control Risk p. 718
Control Testing--Sales Processing p. 731
PPS Sampling--Factory Equipment Additions p. 733
Dallas Dollar Bank Reconciliation p. 734
Analysis of Interbank Transfers p. 735
Accounts Receivable Aging Analysis p. 735
Sales and Purchases Cutoff Tests p. 736
Search for Unrecorded Liabilities p. 737
Estimated Liability for Product Warranty p. 737
Plant Asset Additions and Disposals p. 739
Analysis of Marketable Securities p. 739
Mortgage Note Payable and Note Payable to Bank Two p. 740
Working Trial Balance p. 741
Audit Report p. 743