978-0134065823 Chapter 1 Solution Manual Part 2

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1-17 a. The services provided by Consumers Union are very similar to

assurance services provided by CPA firms. The services provided

by Consumers Union and assurance services provided by CPA

b. The concepts of information risk for the buyer of an automobile and

for the user of financial statements are essentially the same. They

are both concerned with the problem of unreliable information being

provided. In the case of the auditor, the user is concerned about

c. The four causes of information risk are essentially the same for a

buyer of an automobile and a user of financial statements:

(1) Remoteness of information It is difficult for a user to obtain

much information about either an automobile manufacturer

(2) Biases and motives of provider There is a conflict between

not available or too costly to obtain.

(4) Complex exchange transactions The acquisition of an

automobile is expensive and certainly a complex decision

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1-17 (continued)

various magazines.

(2) User shares information risk with management The

manufacturer of a product has a responsibility to meet its

1-18 a. The following parts of the definition of auditing are related to the

narrative:

(1) Altman is being asked to issue a report about qualitative and

market value of each truck.

(3) Samantha Altman will accumulate and evaluate four types of

evidence:

(a) Count the trucks to determine their existence.

determine ownership.

(c) Examine the trucks to determine each truck’s physical

condition.

(d) Examine the blue book to determine the fair market

value of each truck.

1-18 (continued)

(5) The report results are to include:

parking lot the night of June 30.

(b) whether all of the trucks are owned by Regional

Delivery Service.

b. The only parts of the audit that will be difficult for Altman are:

(1) Evaluating the condition, using the guidelines of poor, good,

and excellent. It is highly subjective to do so. If she uses a

using this guideline.

(2) Determining the fair market value, unless it is clearly defined

1-19 a. The major advantages and disadvantages of a career as an IRS

EMPLOYMENT

ADVANTAGES

DISADVANTAGES

INTERNAL

REVENUE

AGENT

1. Extensive training in

individual, corporate, gift,

trust and other taxes is

available with concentration

in area chosen.

2. Hands-on experience with

sophisticated selection

techniques.

1. Experience limited to

taxes.

2. No experience with

operational or financial

statement auditing.

3. Training is not extensive

with any business

enterprise.

CPA

1. Extensive training in audit of

financial statements,

compliance auditing and

operational auditing.

2. Opportunity for experience in

auditing, tax consulting, and

management consulting

practices.

3. Experience in a diversity of

enterprises and industries

1. Exposure to taxes and to

the business enterprise

may not be as in-depth as

the internal revenue agent

or the internal auditor.

2. Likely to be less exposed

to operational auditing

than is likely for internal

auditors.

1-19 (continued)

EMPLOYMENT

ADVANTAGES

DISADVANTAGES

INTERNAL

AUDITOR

1. Extensive exposure to all

segments of the enterprise

with which employed.

2. Constant exposure to one

industry presenting

opportunity for expertise in

that industry.

3. Likely to have exposure to

compliance, financial, and

operational auditing.

1. Little exposure to taxation

and the audit of taxes.

2. Experience is limited to

one enterprise, usually

within one or a limited

number of industries.

GAO AUDITOR

1. Increasing opportunity for

experience in operational

auditing.

2. Exposure to highly

sophisticated statistical

sampling and computer

auditing techniques.

1. Little exposure to diversity

of enterprises and

industries.

2. Bureaucracy of federal

government.

facets of a business. IRS agents and GAO auditors would be in

demand for fraud examinations relating specifically to tax fraud or

governmental entities.

(e.g., Department of Homeland Security)

 Auditors for many state and local government units (e.g.,

state insurance or bank auditors)

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are:

EXAMPLE

a. TYPE OF AUDITOR

b. TYPE OF AUDIT

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

IRS

Internal auditor or CPA

CPA

Internal auditor or CPA

CPA or internal auditor

GAO

CPA

GAO

Compliance

Financial statements or operational

Financial statements

Compliance

Operational

Financial statements

Operational

Financial statements

Compliance

operations.

b. Czarnecki and Hogan likely provide tax services, accounting

1-22 a. Assurance related to financial statements are the most likely forms

of assurance that are likely to be provided only by public accounting

firms. Examples include audits of historical financial statements,

reviews of historical financial statements, audits of internal control

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1-22 (continued)

ISO 9000 certifications.

c. Table 1-1 on p. 11 includes some examples of assurance that may

be provided by public accounting firms or other assurance

providers. For example, assurance on corporate responsibility and

circulation.

1-23 a. The vision of the Global Reporting Initiative (GRI) is a sustainable

global economy where organizations manage their economic,

environmental, social and governance performance and impacts

support to organizations.

b. According to the GRI “A sustainability report is a report published

by a company or organization about the economic, environmental,

and social impacts caused by its everyday activities. A

between financial and non-financial performance. An integrated

report also presents the risks and opportunities the company faces,

accordance” report.

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1-24 a. Answers will vary by state. Most states require 150 hours of

education, with specific requirements for number of accounting hours

and credit hours in other subject areas.

b. Answers will vary by state. Many states require one or two years of

work experience gained in public practice, or possibly government,

d. The Elijah Watt Sells award program was established in 1923

by the American Institute of Certified Public Accountants

(AICPA) to recognize outstanding performance on the Uniform

CPA Examination. The award is presented to candidates who

Examination on their first attempt.

e. Passing information is available on the CPA Examination portion of