O. Ray Whittington
O. Ray Whittington, CIA, CMA, CPA, serves as the dean of the Driehaus College of
Business at DePaul University. He received his B.B.A., M.S., and Ph.D. degrees from
Sam Houston State University, Texas Tech University, and the University of Houston,
respectively. Professor Whittington is an active textbook author on the subjects of auditing
and audit sampling. He has also published in a variety of journals, including The
Accounting Review, The Journal of Accounting Research, and Auditing: A Journal of
Practice and Theory. He has served as a member of the Board of Regents of The Institute
of Internal Auditors and has served as Chairman on the Auditing Standards Committee
of the Auditing Section and the Bylaws Committee, both of the American Accounting
Association. Professor Whittington has served as a member of the AICPA Auditing Standards
Board and as the president of the Auditing Section of the American Accounting
Association.
Kurt Pany, CFE, CPA, is a Professor of Accounting at Arizona State University. He
received his B.S., M.B.A., and Ph.D. degrees from the University of Arizona, the University
of Minnesota, and the University of Illinois, respectively. He has also served as
a staff accountant with Arthur Andersen and Touche Ross, as a member of the Auditing
Standards Board, and as an academic fellow with the American Institute of Certifi ed Public
Accountants. Professor Pany has published articles on auditing in such journals as The
Journal of Accounting Research, The Accounting Review, Auditing: A Journal of Practice
and Theory, The Journal of Accountancy, and The CPA Journal. He is a member of
and has served on various committees of the American Accounting Association and the
American Institute of Certifi ed Public Accountants.
Chapter 1
The Role of the Public Accountant in
the American Economy 1
What Are Assurance Services? 1
The Attest Function 1
Assurance and Nonassurance Services 3
Financial Statement Audits 4
What Creates the Demand for Audits? 5
Major Auditing Developments of the 20th Century 7
The Accounting Profession’s Credibility Crisis 9
The Financial Crisis of 2008 10
Types of Audits 10
Types of Auditors 11
The Public Accounting Profession 12
American Institute of Certifi ed Public Accountants 13
The CPA Examination 15
State Boards of Accountancy 15
Financial Accounting Standards Board 15
Governmental Accounting Standards Board 16
Federal Accounting Standards Advisory Board 16
The Public Company Accounting Oversight Board 16
Securities and Exchange Commission 16
The International Federation of Accountants 17
Other Types of Professional Services 18
Organization of the Public Accounting Profession 19
Industry Specialization 21
Responsibilities of the Professional Staff 21
Professional Development for Public Accounting
Firm Personnel 22
Seasonal Fluctuations in Public Accounting Work 23
Relationships with Clients 23
Chapter Summary 24
Key Terms Introduced or Emphasized in Chapter 1 24
Review Questions 26
Questions Requiring Analysis 27
Objective Questions 27
Problems 32
In-Class Team Case 33
Research and Discussion Case 33
Supplementary References 34
Chapter 2
Professional Standards 35
Auditing Standards 35
AICPA Generally Accepted Auditing Standards 37
PCAOB Auditing Standards 41
The Auditors’ Responsibility for Detecting
Misstatements 42
Contents
Contents xxv
Chapter Summary 130
Key Terms Introduced or Emphasized in
Chapter 4 130
Review Questions 132
Questions Requiring Analysis 133
Objective Questions 134
Problems 138
In-Class Team Case 141
Research and Discussion Case 142
Supplementary References 142
Chapter 5
Audit Evidence and Documentation 143
The Relationships among Audit Risk, Audit Evidence,
and Financial Statement Assertions 143
Financial Statement Assertions 143
Audit Risk at the Account Balance, Class of Transaction, or
Disclosure Level 145
Audit Risk Illustrated 146
Measuring Audit Risk 146
Audit Evidence 147
Types of Audit Procedures 149
Substantive Procedures 154
Types of Substantive Procedures 154
Timing of Substantive Audit Procedures 156
Extent of Substantive Procedures 156
Analytical Procedures 156
Nature of Analytical Procedures 156
Timing of Analytical Procedures 160
Extent of Analytical Procedures 161
Audit Evidence for Subjective Areas 161
Evidence Regarding Accounting Estimates 161
Evidence Regarding Fair Values 162
Evidence Regarding Related Party Transactions 164
Audit Documentation 165
Confi dential Nature of Working Papers 165
Ownership of Audit Working Papers 166
Working Papers and Auditors’ Liability 166
Types of Working Papers 167
Organization of Working Papers 169
Guidelines for Preparation of Working
Papers 171
Computer-Generated Working Papers 173
Review of Audit Working Papers 173
Chapter Summary 174
Key Terms Introduced or Emphasized in
Chapter 5 174
Review Questions 176
Questions Requiring Analysis 178
Objective Questions 179
Problems 182
In-Class Team Case 185
Research and Discussion Cases 185
Supplementary References 188
Additional Code of Professional Conduct Rules 90
Integrity and Objectivity Rule 90
General Standards Rule 90
Compliance with Standards Rule 91
Accounting Principles Rule 91
Acts Discreditable Rule 92
Contingent Fees Rule 93
Commissions and Referral Fees Rule 94
Advertising and Other Forms of Solicitation Rule 94
Confi dential Client Information Rule 94
Form of Organization and Name Rule 96
Code of Professional Conduct: Applicability to
Members in Business and Others 97
Members in Business 97
Other Members 97
Enforcement of Professional Ethics 98
Ethics for Internal Auditors 99
Chapter Summary 100
Key Terms Introduced or Emphasized in Chapter 3 101
Review Questions 103
Questions Requiring Analysis 104
Objective Questions 105
Problems 110
In-Class Team Cases 111
Research and Discussion Case 112
Supplementary References 112
Chapter 4
Legal Liability of CPAs 113
The Scope of CPA Liability 113
Litigation Placed in Perspective 113
Sources of CPA Liability 114
CPAs’ Liability to Their Clients under
Common Law 115
The Elements of Duty and Breach of Duty 116
The Element of Losses (Damages) 117
The Element of Causation (Proximate Cause) 117
Auditors’ Common Law Liability to Third Parties 118
Ultramares (Known User) Approach 118
Restatement of Torts (Foreseen User) Approach 119
Rosenblum (Foreseeable User) Approach 119
Summary of Third-Party Liability Approaches 120
Liability to Third Parties under Statutory Law 120
Securities Act of 1933 121
Securities Exchange Act of 1934 122
Comparison of the 1933 and 1934 Acts 124
Racketeer Infl uenced and Corrupt Organizations Act 125
Auditors’ Criminal Liability under the Securities Acts 125
Criminal Liability under Other Statutes 126
SEC and Public Company Accounting Oversight
Board Regulation 126
CPAs’ Liability for Accounting and Review
Services 127
CPAs’ Posture in the Age of Litigation 129
xxvi Contents
Appendix 6B
Examples of Fraud Risk Factors 237
Risk Factors Relating to Misstatements Arising from
Fraudulent Financial Reporting 237
Risk Factors Relating to Misstatements Arising from
Misappropriation of Assets 239
Appendix 6C
Illustrative Audit Case: Keystone Computers
& Networks, Inc. 240
Part I: Audit Planning 240
Appendix 6C Problems 247
Chapter 7
Internal Control 249
The Meaning of Internal Control 249
The Foreign Corrupt Practices Act of 1977 251
Means of Achieving Internal Control 251
The Control Environment 252
Commitment to Integrity and Ethical Values 252
Effective Board of Directors 252
Effective Organizational Structure 253
Attracting, Developing, and Retaining Competent
Employees 254
Individual Accountability 255
Risk Assessment 255
Control Activities 256
Performance Reviews 256
Transaction Control Activities 256
General Controls and Application Controls 258
Segregation of Duties 258
The Accounting Information System 259
Monitoring of Controls 260
Internal Audit Function 260
Limitations of Internal Control 260
Enterprise Risk Management 260
Corporate Governance and Its Relationship to Internal
Control 262
Financial Statement Audits: The Role of Internal
Control 262
Obtain an Understanding of the Client and Its
Environment, Including Internal Control 263
Required Auditor Understanding of Internal Control
Components 264
Areas Diffi cult to Control 266
Risk Assessment Procedures for Internal Control 266
Documenting the Understanding of Internal Control 267
Assess the Risks of Material Misstatement 271
Assess Risks at the Financial Statement Level 272
Assess Risks at the Relevant Assertion Level 273
Design and Perform Further Audit Procedures 273
Tests of Controls 273
Revise the Risk of Material Misstatement Based on the
Results of Tests of Controls 275
Design and Perform Substantive Procedures 275
Chapter 6
Audit Planning, Understanding the Client,
Assessing Risks, and Responding 189
The Audit Process 189
Obtaining Clients 191
Submitting a Proposal 193
Communication with Predecessor Auditors 194
Planning the Audit 195
Establishing an Understanding with the Client 196
Develop an Overall Audit Strategy and Audit Plan 197
Use of the Client’s Staff 198
Involvement of More Than One CPA Firm 199
Use of Specialists 199
Additional First-Year Considerations 199
Obtaining an Understanding of the Client and Its
Environment 199
Risk Assessment Procedures 200
Sources of Information 202
Determining Materiality 204
Assessing the Risks of Material Misstatement and
Designing Further Audit Procedures 207
Assessing Risks of Material Misstatement 207
Addressing the Risks of Material Misstatement Due to
Fraud 209
Designing Further Audit Procedures in Response to
Assessed Risks 213
The Audit Trail and Directional Testing 214
Transaction Cycles (Classes of Transactions) 215
The Audit Plan’s Systems and Substantive
Portions 216
The Systems (Internal Control) Portion of the Plan 216
The Substantive Procedures Portion of the Plan 217
Summary of the Relationship between Tests of Controls and
Substantive Procedures 219
Objectives of Audit Plans 219
General Objectives of Audit Plans for Assets 219
Substantiation of Account Balances 221
Existence of Assets 221
Rights to the Assets 221
Establishing Completeness 221
Verifying the Cutoff 222
Valuation of Assets 222
Financial Statement Presentation and Disclosure 222
An Illustration of Audit Plan Design 223
Timing of Audit Work 223
Chapter Summary 225
Key Terms Introduced or Emphasized in Chapter 6 225
Review Questions 227
Questions Requiring Analysis 228
Objective Questions 230
Problems 235
Ethics Case 235
Appendix 6A
Selected Internet Addresses 236
Contents xxvii
Chapter 9
Audit Sampling 337
Comparison of Statistical and Nonstatistical
Sampling 337
Selecting a Random Sample 338
Other Methods of Sample Selection 340
Stratifi cation 340
Types of Statistical Sampling Plans 341
Allowance for Sampling Risk (Precision) 342
Sample Size 342
Audit Sampling for Tests of Controls 343
Sampling Risk for Tests of Controls 343
Attributes Sampling 344
Determine the Objective of the Test 344
Defi ne the Attributes and Deviation Conditions 344
Defi ne the Population 345
Specify the Risk of Assessing Control Risk Too Low and the
Tolerable Deviation Rate 345
Estimate the Expected Population Deviation Rate 346
Determine the Sample Size 346
Select the Sample 347
Test the Sample Items 347
Evaluate the Sample Results 348
Document the Sampling Procedure 349
Detailed Illustration of Attributes Sampling 349
Other Statistical Attributes Sampling Approaches 351
Nonstatistical Attributes Sampling 352
Audit Sampling for Substantive Procedures 353
Sampling Risk for Substantive Procedures 353
Classical Variables Sampling 354
Mean-per-Unit Estimation 354
Controlling Sampling Risk 354
Determination of Sample Size 355
Evaluation of Sample Results 355
Illustration of Mean-per-Unit Estimation 356
Difference and Ratio Estimation 359
Illustration of Difference and Ratio Estimation 360
Nonstatistical Sampling for Substantive
Procedures 362
Illustration of Nonstatistical Sampling 362
Chapter Summary 364
Key Terms Introduced or Emphasized in Chapter 9 364
Review Questions 366
Questions Requiring Analysis 367
Objective Questions 368
Problems 373
In-Class Team Cases 375
Appendix 9A
Probability-Proportional-to-Size (PPS)
Sampling 377
Determination of Sample Size 377
Controlling Sampling Risk 378
Method of Sample Selection 378
Evaluation of Sample Results 378
Documentation 275
Decision Aids for Audit Plan Modifi cation 278
Using the Work of Internal Auditors 278
Consideration of Outsourced Computer Processing to
Service Organizations 279
Communication of Control-Related Matters 281
Internal Control Reporting by Public Companies and
Their Auditors 282
Overall Approach for an Audit of Internal Control 284
Internal Control in the Small Company 285
Chapter Summary 286
Key Terms Introduced or Emphasized in Chapter 7 287
Review Questions 289
Questions Requiring Analysis 290
Objective Questions 292
Problems 296
In-Class Team Case 298
Appendix 7A
Antifraud Programs and Control Measures 300
Chapter 8
Consideration of Internal Control in an
Information Technology Environment 303
Nature of IT-Based Systems 304
Characteristics of Various Types of IT-Based Systems 304
Impact of IT on the Audit Trail 307
Internal Control in an IT Environment 308
Organizational Structure of the Information System
Function 308
Computer-Based Fraud 311
Internal Auditing in an IT Environment 312
Control Activities in an IT System 312
General Control Activities 313
Application Control Activities 315
User Control Activities 316
Control in Decentralized and Single Workstation
Environments 317
Monitoring in an IT Environment 317
The Auditors’ Consideration of Internal Control in an IT
Environment 317
Obtaining an Understanding of IT-Based System
Controls 318
Assessing the Risks of Material Misstatement 319
Testing Monitoring Controls 324
Designing Substantive Procedures with
Computers 324
Using Audit Software: An Illustration 325
Chapter Summary 326
Key Terms Introduced or Emphasized in Chapter 8 327
Review Questions 329
Questions Requiring Analysis 330
Objective Questions 330
Problems 333
In-Class Team Case 334
xxviii Contents
Risk Assessment 441
Revenue Cycle— Accounting System and Control
Activities 441
Monitoring 445
Internal Control over Notes Receivable 445
Audit Documentation for Receivables and Revenue 446
Audit of Receivables and Revenue 447
Interim Audit Work on Receivables and Revenue 471
Chapter Summary 472
Key Terms Introduced or Emphasized in
Chapter 11 472
Review Questions 473
Questions Requiring Analysis 474
Objective Questions 476
Problems 482
In-Class Team Case 484
Ethics Cases 486
Appendix 11A
Illustrative Audit Case: Keystone Computers
& Networks, Inc. 487
Part II: Consideration of Internal Control 487
Appendix 11A Problems 500
Appendix 11B
Illustrative Audit Case: Keystone Computers
& Networks, Inc. 501
Part III: Substantive Tests—Accounts Receivable
and Revenue 501
Appendix 11B Problems 507
Chapter 12
Inventories and Cost of Goods Sold 508
Inventories and Cost of Goods Sold 508
Sources and Nature of Inventories and Cost
of Goods Sold 508
The Auditors’ Objectives in Auditing Inventories and Cost
of Goods Sold 508
Internal Control over Inventories and Cost of
Goods Sold 509
Control Environment 510
Risk Assessment 510
Monitoring 511
Purchases and Production Cycles—Accounting Systems
and Control Activities 511
Audit Documentation for Inventories and Cost
of Goods Sold 515
Audit of Inventories and Cost of Goods Sold 515
Problems Associated with Inventory of First-Year
Audit Clients 533
Chapter Summary 534
Key Terms Introduced or Emphasized in
Chapter 12 534
Review Questions 535
Questions Requiring Analysis 536
Objective Questions 537
Problems 542
Illustration of PPS Sampling 379
Considerations in Using PPS Sampling 381
Appendix 9B
Audit Risk 382
Key Terms Introduced or Emphasized in
Chapter 9 Appendixes 383
Questions and Problems for Chapter 9 Appendixes 384
Objective Questions 385
In-Class Team Case for Chapter 9 Appendixes 387
Integrating Problem for Chapter 9 and the
Appendixes 387
Chapter 10
Cash and Financial Investments 389
Cash 389
Sources and Nature of Cash 389
The Auditors’ Objectives in the Audit of Cash 389
How Much Audit Time for Cash? 390
Internal Control over Cash Transactions 390
Internal Control over Cash Receipts 391
Internal Control over Cash Disbursements 393
Audit Documentation for Cash 398
Audit of Cash 398
Interim Audit Work on Cash 412
Financial Investments 412
The Need for Specialized Knowledge 413
The Auditors’ Objectives in Auditing Financial
Investments 413
Internal Control over Financial Investments 414
Internal Control Questionnaire 415
Audit of Financial Investments 415
Risks of Material Misstatement of Financial
Investments 416
Substantive Procedures for Financial Investments 416
Chapter Summary 421
Key Terms Introduced or Emphasized in Chapter 10 421
Review Questions 422
Questions Requiring Analysis 423
Objective Questions 425
Problems 431
In-Class Team Cases 435
Research and Discussion Case 437
Ethics Case 438
Chapter 11
Accounts Receivable, Notes Receivable, and
Revenue 439
Receivables 439
Sources and Nature of Accounts Receivable 439
Sources and Nature of Notes Receivable 439
The Auditors’ Objectives in Auditing Receivables and
Revenue 440
Internal Control of Accounts Receivable and Revenue 440
Control Environment 440
Contents xxix
Review Questions 592
Questions Requiring Analysis 594
Objective Questions 594
Problems 598
In-Class Team Case 600
Appendix 14A
Illustrative Audit Case: Keystone Computers
& Networks, Inc. 601
Part IV: Consideration of Internal Control 601
Appendix 14A Problems 604
Chapter 15
Debt and Equity Capital 605
Debt 605
Source and Nature of Debt 605
The Auditors’ Objectives in Auditing Debt 605
Assessment of the Inherent Risks Related to Debt 606
Internal Control over Debt 606
Audit Documentation 607
Audit of Debt 607
Time of Examination—Debt 613
Equity Capital 613
Sources and Nature of Owners’ Equity 613
The Auditors’ Objectives in Auditing Owners’ Equity 614
Internal Control over Owners’ Equity 614
Audit Documentation for Owners’ Equity 616
Audit Plan—Capital Stock 616
Retained Earnings and Dividends 620
Financial Statement Presentation of Stockholders’
Equity 620
Time of Examination—Stockholders’ Equity 621
Audit of Partnerships and Sole Proprietorships 621
Chapter Summary 621
Key Terms Introduced or Emphasized in Chapter 15 622
Review Questions 622
Questions Requiring Analysis 624
Objective Questions 625
Problems 627
Chapter 16
Auditing Operations and Completing the
Audit 630
Auditing Operations 630
The Auditors’ Approach to Auditing Operations 630
Revenue 631
Relationship of Revenue to Balance Sheet Accounts 631
Miscellaneous Revenue 631
Expenses 632
Relationship of Expenses to Balance Sheet Accounts 632
Substantive Procedures for Selling, General, and
Administrative Expenses 632
The Audit of Payroll 635
Internal Control over Payroll 635
Documentation of Internal Control for Payroll 638
In-Class Team Case 544
Ethics Case 544
Research and Discussion Case 545
Chapter 13
Property, Plant, and Equipment: Depreciation
and Depletion 546
Property, Plant, and Equipment 546
The Auditors’ Objectives in Auditing Property,
Plant, and Equipment 546
Contrast with Audit of Current Assets 547
Internal Control over Plant and Equipment 547
Audit Documentation 548
Initial Audits and Repeat Engagements 550
Audit of Property, Plant, and Equipment 550
Depreciation 558
The Auditors’ Perspective toward Depreciation 558
The Auditors’ Objectives in Auditing Depreciation 559
Audit Program—Depreciation Expense and Accumulated
Depreciation 559
Testing the Client’s Provision for Depreciation 560
Examination of Natural Resources 560
Audit of Intangible Assets 561
Audit of Plant, Equipment, and Intangibles in Advance of
the Balance Sheet Date 561
Chapter Summary 562
Key Terms Introduced or Emphasized in
Chapter 13 562
Review Questions 562
Questions Requiring Analysis 563
Objective Questions 565
Problems 568
In-Class Team Case 570
Chapter 14
Accounts Payable and Other Liabilities 572
Accounts Payable 572
Sources and Nature of Accounts Payable 572
The Auditors’ Objectives in Auditing Accounts
Payable 572
Internal Control over Accounts Payable 573
Audit Documentation for Accounts Payable 575
Audit of Accounts Payable 575
Other Liabilities 586
Amounts Withheld from Employees’ Pay 586
Sales Taxes Payable 587
Unclaimed Wages 587
Customers’ Deposits 587
Accrued Liabilities 587
Balance Sheet Presentation 591
Time of Examination 591
Chapter Summary 591
Key Terms Introduced or Emphasized in
Chapter 14 592
xxx Contents
Group Financial Statements 680
Modifi ed Opinions 683
Materially Misstated Financial Statements (“Departures
from GAAP”) 683
Inability to Obtain Suffi cient Appropriate Audit Evidence
(Scope Limitation) 685
Summary of Auditors’ Reports 687
Additional Reporting Issues 687
Two or More Report Modifi cations 687
Reporting on Comparative Financial Statements 688
Different Opinions on Different Statements 689
Alerting Readers about the Intended Use of the Auditors’
Report 689
Reports to the SEC 689
Chapter Summary 690
Key Terms Introduced or Emphasized in Chapter 17 691
Review Questions 692
Questions Requiring Analysis 693
Objective Questions 693
Problems 700
In-Class Team Cases 703
Research and Discussion Case 705
Chapter 18
Integrated Audits of Public Companies 707
Overview 707
Management’s Responsibility for Internal
Control 708
Management’s Evaluation Process and Assessment 708
The Auditors’ Responsibility for Reporting on Internal
Control in PCAOB Audits 711
Plan the Engagement 712
Use a Top-Down Approach to Identify Controls
to Test 713
Test and Evaluate Design Effectiveness of Internal Control
over Financial Reporting 718
Test and Evaluate Operating Effectiveness of Internal
Control over Financial Reporting 718
Form an Opinion on the Effectiveness of Internal Control
over Financial Reporting 722
Audit Report Modifi cations 725
Other Communication Requirements 728
Reporting on Whether a Previously Reported Material
Weakness Continues to Exist 728
Integrated Audits for Nonpublic Companies 728
Chapter Summary 729
Key Terms Introduced or Emphasized in
Chapter 18 729
Review Questions 730
Questions Requiring Analysis 731
Objective Questions 732
Problems 735
In-Class Team Cases 736
Audit Plan for Payroll 638
Audit of the Statement of Cash Flows 639
Completing the Audit 639
Search for Unrecorded Liabilities 640
Review the Minutes of Meetings 640
Perform Final Analytical Procedures 640
Perform Procedures to Identify Loss Contingencies 640
Perform the Review for Subsequent Events 644
Obtain Representation Letter 647
Communicate Misstatements to Management 647
Evaluate Audit Findings 648
Review the Engagement 652
Responsibilities for Other Information 652
Other Information in Documents Containing Audited
Financial Statements 652
Required Supplementary Information 652
Supplementary Information in Relation to the Financial
Statements as a Whole 653
Opinion Formulation and Report Issuance 654
Additional Communications 654
Post-Audit Responsibilities 655
The Auditors’ Subsequent Discovery of Facts Existing at
the Date of Their Report 655
Subsequent Discovery of Omitted Audit Procedures 656
Chapter Summary 656
Key Terms Introduced or Emphasized in
Chapter 16 657
Review Questions 658
Questions Requiring Analysis 659
Objective Questions 660
Problems 666
In-Class Team Case 668
Research and Discussion Case 669
Supplementary References 670
Chapter 17
Auditors’ Reports 671
Financial Statements and Standard Unmodifi ed Audit
Reports 671
Financial Statements 671
Financial Statement Disclosures 672
Comparative Financial Statements 672
The Auditors’ Standard Report—Nonpublic Clients 672
The Auditors’ Standard Report—Public Clients 674
Expression of an Opinion 675
Reports with an Unmodifi ed Opinion and an Emphasisof-
Matter Paragraph 676
Substantial Doubt about a Company’s Going-Concern
Status 677
Generally Accepted Accounting Principles Not Consistently
Applied 678
Auditor Discretionary Circumstances That Result in an
Emphasis-of-Matter Paragraph 679
Contents xxxi
Assurance on Internal Control over
Financial Reporting 773
Assurance on Prospective Financial Statements 774
Assurance on Compliance 775
Assurance on Management’s Discussion and
Analysis 775
Trust Services 775
Service Organization Control (SOC) Reports 777
PrimePlus/ElderCare Services 778
Future Assurance Services 779
Chapter Summary 780
Key Terms Introduced or Emphasized in
Chapter 20 781
Review Questions 782
Questions Requiring Analysis 783
Objective Questions 783
Problems 787
In-Class Team Case 787
Research and Discussion Case 788
Chapter 21
Internal, Operational, and Compliance
Auditing 789
Internal Auditing 789
What Is the Purpose of Internal Auditing? 789
Evolution of Internal Auditing 789
The Internal Auditors’ Role in Sarbanes-Oxley
Compliance 791
Professional Standards of Internal Auditing 791
Certifi cation of Internal Auditors 802
Operational Auditing 802
Objectives of Operational Audits 802
General Approach to Operational Audits 802
Compliance Auditing 806
Attesting to Compliance with Laws and
Regulations 806
Compliance Reporting by Broker-Dealers under PCAOB
Requirements 808
Compliance Auditing of Government Entities
and Organizations Receiving Federal Financial
Assistance 809
Compliance Auditing— A Summary 817
Chapter Summary 817
Key Terms Introduced or Emphasized in
Chapter 21 818
Review Questions 818
Questions Requiring Analysis 819
Objective Questions 821
Problems 823
In-Class Team Case 824
Index 825
Chapter 19
Additional Assurance Services: Historical
Financial Information 738
Audit-Based Services: Assurance on Additional
Information 738
Reporting on Compliance with Aspects of Contractual
Agreements or Regulatory Requirements in Connection
with Audited Financial Statements 738
Letters for Underwriters 739
Summary Financial Statements 740
Auditing Financial Statements That Use a Financial
Reporting Framework Other Than GAAP 740
Audits of Financial Statements Prepared in
Accordance with Special-Purpose Financial Reporting
Frameworks 740
Financial Statements Prepared Using a Financial
Reporting Framework Generally Accepted in
Another Country 743
Additional GAAS Audits 743
Single Financial Statements and Specifi c Elements,
Accounts, or Items of Financial Statements 743
Audits of Personal Financial Statements 746
Reviews of Historical Financial Statements 746
SSARS Reviews of Nonpublic Companies
(Nonissuers) 746
PCAOB and Auditing Standards Board Reviews of Interim
Information 751
Compilation and Preparation of Historical Financial
Statements 752
Compilation of Financial Statements 753
Preparation of Financial Statements 754
Chapter Summary 756
Key Terms Introduced or Emphasized in Chapter 19 757
Review Questions 758
Questions Requiring Analysis 758
Objective Questions 759
Problems 763
In-Class Team Case 763
Research and Discussion Case 764
Supplementary References 765
Chapter 20
Additional Assurance Services: Other
Information 766
Assurance Services 766
The Demand for Assurance Services 767
Attestation Standards 768
The Criteria 769
Attestation Risk and Materiality 771
The Character of the Engagement 771
Assurance Service Examples 773
