Topics: Auditing, Audit, Auditor's report Pages: 78 (26390 words) Published: March 21, 2013
Solutions Manual
to accompany

Auditing and Assurance Services in Malaysia
Third Edition
Messier/Glover/Prawitt Margaret Boh

Kuala Lumpur • Boston • Burr Ridge, IL • Dubuque, IA • Madison, WI • New York • San Francisco St. Louis • Bangkok • Bogotá • Caracas • Singapore • Lisbon • London • Madrid Mexico City • Milan • Montreal • New Delhi • Santiago • Seoul • Sydney • Taipei • Toronto

Solutions Manual
to accompany

Auditing and Assurance Services in Malaysia
Third Edition

Malaysian Edition Copyright © 2007 by McGraw-Hill (Malaysia) Sdn. Bhd. 40, Jalan Pengacara U1/48 Temasya Industrial Park 40150 Shah Alam Selangor, Malaysia All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior written permission of the publisher. 1 2 3 4 5 6 7 8 9 10 TV TV 09 08 07

Solutions Manual to accompany

Auditing and Assurance Services in Malaysia 3E
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 An Introduction to Assurance and Financial Statement Auditing1 The Financial Statement Auditing Environment 8 Risk Assessment and Materiality 16 Audit Evidence and Audit Procedures 23 Planning and Audit Documentation 33 Internal Control in a Financial Statement Audit 40 The Effect of Information Technology on the Audit Process 47 Audit Sampling: An Overview and Application to Tests of Controls 56 Audit Sampling: An Application to Substantive Tests of Account Balances 62 Auditing the Revenue Process 72 Auditing the Purchasing Process 80 Auditing the Human Resource Management Process 89 Auditing the Inventory Management Process 95 Auditing Financing Process: Property, Plant, and Equipment and Prepayments 103 Auditing Financing Process: Long-Term Liabilities, Equity and Income Statement Items 111 Auditing Financing Process: Cash and Investments 116 Completing the Audit 121 Auditor’s Report on Financial Statements and Special Purpose Audits 128 Professional Conduct and Ethics 136 Legal Liability and Quality Control 143 Other Assurance Engagements, Related Services, and Internal Auditing 149

Solutions Manual to accompany Auditing and Assurance Services in Malaysia 3E

CHAPTER 1 An Introduction to Assurance and Financial Statement Auditing

Answers to Review Questions 1-1 The study of auditing is more conceptual in nature compared to other accounting courses. Rather than focusing on learning the rules, techniques, and computations required to prepare financial statements, auditing emphasises learning a framework of analytical and logical skills to evaluate the relevance and reliability of the systems and processes responsible for financial information, as well as the information itself. To be successful, students must learn the framework and then learn to use logic and common sense in applying auditing concepts to various circumstances and situations. Understanding auditing can improve the decision making ability of consultants, business managers, and accountants by providing a framework for evaluating the usefulness and reliability of information. 1-2 There is a need for auditing in a free-market economy because the agency relationship between an absentee owners/shareholders and the manager produces a natural conflict of interest due to the information asymmetry that exists between the owners and manager. As a result, the agent agrees to be monitored as part of his/her employment contract. Auditing appears to be a cost-effective form of monitoring. The empirical evidence suggests auditing was demanded prior to government regulation. In 1926, before it was required by law in the U.S., independent auditors audited 82 percent of the companies on the New York Stock Exchange. Additionally, many private companies and municipalities not subject to government regulations...
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