Financial Statement Auditing Environment

mes32502_fm_i-xxx.indd i 10/20/15 11:48 AM

Auditing & Assurance Services A S Y S T E M A T I C A P P R O A C H

Don't use plagiarized sources. Get Your Custom Essay on
Financial Statement Auditing Environment
Just from $10/Page
Order Essay

Final PDF to printer

 

 

mes32502_fm_i-xxx.indd ii 10/20/15 11:48 AM

Final PDF to printer

 

 

mes32502_fm_i-xxx.indd iii 10/20/15 11:48 AM

William F. Messier, Jr. University of Nevada, Las Vegas

Department of Accounting and

Norwegian School of Economics Department of Accounting, Auditing and Law

Steven M. Glover Brigham Young University

Marriott School of Management School of Accountancy

Douglas F. Prawitt Brigham Young University

Marriott School of Management School of Accountancy

TENTH EDIT ION

Auditing & Assurance Services A S Y S T E M A T I C A P P R O A C H

Final PDF to printer

 

 

mes32502_fm_i-xxx.indd iv 10/29/15 02:11 PM

AUDITING & ASSURANCE SERVICES: A SYSTEMATIC APPROACH, TENTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2014, 2012, and 2010. 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, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6

ISBN 978-0-07-773250-9 MHID 0-07-773250-2

Senior Vice President, Products & Markets: Kurt L. Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Tim Vertovec Marketing Director: Brad Parkins Brand Manager: Nichole Pullen Director, Product Development: Rose Koos Director of Digital Content: Patricia Plumb Lead Product Developer: Ann Torbert Product Developer: Jonathan Thornton Marketing Manager: Michelle Nolte Market Development Manager: Erin Chomat Digital Product Analyst: Xin Lin Director, Content Design & Delivery: Linda Avenarius Program Manager: Daryl Horrocks Lead Content Project Managers: Pat Frederickson and Brian Nacik Buyer: Susan K. Culbertson Design: Debra Kubiak Content Licensing Specialists: Carrie Burger and Shannon Manderscheid Cover Image: © Danita Delimont/Getty Images Compositor: SPi Global Printer: R. R. Donnelley

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Messier, William F., author. Auditing & assurance services : a systematic approach / William F. Messier, Jr., Steven M. Glover, Douglas F. Prawitt.—Tenth edition. pages cm ISBN 978-0-07-773250-9 (alk. paper) 1. Auditing. I. Glover, Steven M., 1963- author. II. Prawitt, Douglas F. author. III. Title. IV. Title: Auditing and assurance services. HF5667.M46 2016 657’.45–dc23 2015028419

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

Final PDF to printer

 

 

v

mes32502_fm_i-xxx.indd v 10/20/15 11:48 AM

William F. Messier, Jr. holds the Kenneth and Tracy Knauss Endowed Chair in Account- ing at the Department of Accounting, University of Nevada, Las Vegas. He is also an Adjunct Professor at the Department of Accounting, Auditing and Law at the Norwegian School of Economics. Professor Messier holds a B.B.A. from Siena College, an M.S. from Clarkson University, and an M.B.A. and D.B.A. from Indiana University. He is a CPA in Florida and has held faculty positions at the University of Florida (Price Waterhouse Professor) and Georgia State University (Deloitte & Touche Professor). Professor Messier was a visiting faculty member at SDA Bocconi in Milan and the Universities of Luxembourg and Michigan. Professor Messier served as the Academic Member of the AICPA’s Auditing Standards Board and as Chair of the AICPA’s International Auditing Standards Subcommittee. He is a past editor of Auditing: A Journal of Practice & Theory and formerly President of the Audit- ing Section of the American Accounting Association. Professor Messier was the recipient of the American Accounting Association’s Outstanding Accounting Educator Award (2015), AICPA’s Distinguished Achievement in Accounting Education Award (2012), AAA Audit- ing Section’s Outstanding Educator Award (2009) and the Distinguished Service in Auditing Award (2008). In 2011, Professor Messier was awarded an honorary doctorate from the Nor- wegian School of Economics and Business Administration. Professor Messier has also served as an expert witness in audit litigation cases.

Professor Steven M. Glover is the K. Fred Skousen Professor and Associate Dean of the Marriott School of Management, Brigham Young University. Professor Glover is a CPA in Utah and holds a PhD and BS from the University of Washington and an AA in Business from BYU – Idaho. He previously worked as an auditor for KPMG LLP and as a director in the national office of PwC LLP. Professor Glover is currently serving on the AICPA Auditing Standards Board and has served on the audit committee of a nonprofit organization. He has served on the board of advisors for technology companies and he actively consults with public companies and public accounting firms. He has also served as an expert witness. Professor Glover is a past President of the Auditing Section of the American Accounting Association and he has been on auditing-related task forces of the AICPA. Professor Glover is or has served on the editorial boards of Auditing: A Journal of Practice & Theory, The Accounting Review, Current Issues in Auditing, and the review board of the AAA/CAQ Access to Audit Personnel Program. He has authored or coauthored over 40 articles and books primarily focused in the areas of auditor decision making, audit education, and audit practice. Together with Professor Prawitt and KPMG, LLP, he co-authored an award-winning monograph designed to acceler- ate the professional judgment of auditors and auditing students, as well as a monograph on professional skepticism commissioned by the Standards Working Group of the GPPC, an international consortium of the six largest public accounting network firms.

Professor Douglas F. Prawitt is the Glen Ardis Professor of Accountancy at the Marriott School of Management, Brigham Young University. Professor Prawitt is a CPA in Utah. He holds a PhD from the University of Arizona, and BS and MAcc degrees from Brigham Young University. Professor Prawitt was awarded the Marriott School’s Teaching Excellence and Outstanding Researcher awards in 1998 and 2000. He received the Merrill J. Bateman Student Choice Teaching Award in 2002, BYU’s Wesley P. Lloyd Award for Distinction in Graduate Education in 2006, and the American Accounting Association’s Deloitte/Wildman Award in 2013.

About the Authors

Final PDF to printer

 

 

vi About the Authors

mes32502_fm_i-xxx.indd vi 10/20/15 11:48 AM

Dedications

The authors dedicate this book to the following individuals:

Teddie, Stacy, Brandon, Zachary, Mark, Lindsay, Olive, and Frederick —William F. Messier, Jr.

Tina, Jessica, Andrew, Jennifer, Anna, Wayne, and Penny —Steven M. Glover

Meryll, Nathan, Matthew, Natalie, Emily, AnnaLisa, Leah, George, and Diana —Douglas F. Prawitt

He consults actively with international, regional, and local public accounting firms. He worked extensively over a five-year period with the Committee of Sponsoring Organiza- tions (COSO) on the COSO Enterprise Risk Management Framework and Internal Control over Financial Reporting—Guidance for Smaller Public Companies projects, and served a three-year appointment as a voting member of the AICPA Auditing Standards Board, from 2005–2008. In the fall of 2011, he was appointed to serve a three-year term as a member of the COSO Board and was appointed to serve a second three-year term beginning in 2014. Profes- sor Prawitt also has served in several capacities with the American Accounting Association, including as a member of the editorial boards of Auditing: A Journal of Practice & Theory, Behavioral Research in Accounting, and as associate editor of Accounting Horizons. He has authored or co-authored over 40 articles and books, primarily in the areas of auditor judgment and decision making, and audit practice. Most recently, together with Professor Steve Glover and KPMG, LLP, he co-authored an award-winning monograph designed to accelerate the professional judgment of auditors and auditing students, as well as a monograph on profes- sional skepticism commissioned by the Standards Working Group of the GPPC, an interna- tional consortium of the six largest public accounting firm networks.

Final PDF to printer

 

 

vii

mes32502_fm_i-xxx.indd vii 10/20/15 11:48 AM

Why a New Edition?

Dear Colleagues and Friends, The pace of change in the financial statement auditing environment continues to accelerate, even as the need for relia- bile, high-quality assurance over financial reporting continues to intensify. The auditing environment is far more com- plex and dynamic today than it was even 10 years ago. Today, for example, financial statement auditors practice in a regulated environment and must deal with three sets of auditing standards: the standards of the PCAOB for audits of U.S. public companies, the standards of the AICPA’s Auditing Standards Board for audits of essentially all other U.S. entities (e.g., private companies, government entities, universities), and the standards of the IFAC’s International Audit- ing and Assurance Standards Board for audits of entities based outside of the United States. And those standards have undergone change at an unprecedented pace, with few signs of slowing. It is difficult enough for us as professors to stay abreast of the unprecedented change and complexity in the auditing environment; it is simply unrealistic to expect our students to be able to grasp all of this while they are working diligently just to learn the fundamentals of financial state- ment auditing.

That is why we have focused our efforts in this new edition to present the fundamentals of auditing in a crisp, clear, and understandable way, helping students navigate the inherent complexity while gaining a deep, intuitive grasp of fundamental auditing concepts. We do this by using simple yet compelling illustrations, examples, and analogies, such as relating the demand for an audit to the desire of a prospective home buyer to hire a house inspector. Our hope is that students will not only understand the important standards and concepts underlying auditing but that they will gain an intuitive grasp of why it is important and how the underlying logic can inform their judgments not only as auditors but as business people. In terms of the three sets of extant auditing standards, we simplify the complexities involved by adopting an approach similar to that taken by all of the major international accounting firms: we start with a base set of standards (in our case, the AICPA’s new body of “clarity” standards, which are at this point very similar to the IAASB standards) and we build on that base by addressing any requirements in the PCAOB standards that require more from the auditor. The AICPA’s clarity standards are newly converged with international auditing standards, which means that by studying this book your students will learn the auditing concepts that underlie an audit performed under any of the three extant sets of standards. All of the major firms have adopted a similar approach because it allows their pro- fessionals to practice effectively in any environment, domestic or international, using a single, merged set of auditing standards, rather than having to learn the specifics of three different sets. Your students will have that same advantage in learning auditing from this book.

Although the auditing environment has become even more complex and demanding, at the same time it is increasingly important that students gain a deep understanding and working knowledge of fundamental auditing concepts and how they are applied. From the beginning we have worked hard to make this book the most up-to-date, “student-friendly” introductory auditing book on the market, and this new edition continues that effort. Some of the ways this book encourages your students (and ours) to think more clearly and deeply about what they are studying are by

1. Expanding the use of “stop and think” phrases at key places throughout the chapters to encourage students to more fully internalize key concepts and facilitate deep learning by your students.

2. Clarifying explanations and adding easy-to-understand examples throughout the book.

Final PDF to printer

 

 

viii Why a New Edition?

mes32502_fm_i-xxx.indd viii 10/20/15 11:48 AM

3. Making several chapters more concise and enhancing the focus on key concepts by deleting noncentral detail.

4. Improving end-of-chapter and supplementary materials throughout the book and on the website.

5. Adding a “Professional Judgment” module to the print copy of the book to accelerate the development of pro- fessional judgment abilities in your students. This module is based on the 2013 AAA Wildman Award winning KPMG Professional Judgment monograph, authored by Steve Glover and Doug Prawitt, in collaboration with KPMG leaders and partners.

6. New discussion cases added to Chapters 3 and 6 relating to the misappropriations of assets at Koss Corporation and Dixon, Illinois.

This new edition also contains several important updates including the introduction of industry leader IDEA® software by CaseWare Analytics. IDEA is a powerful and user-friendly data analysis tool designed to help auditors perform data analysis, audit sampling, and other audit procedures efficiently and effectively. Students are introduced to IDEA in the text and through hands-on tutorials, exercises, and problems. This edition also has been updated to reflect changes in auditing standards, such as the PCAOB’s Risk Assessment standards and the AICPA’s newly revised body of “clar- ity” standards, including the “principles underlying an audit conducted in accordance with generally accepted auditing standards.” The book also reflects new developments in how auditors assess materiality, based on research into major firms’ materiality policies by Aasmund Eilifsen and Bill Messier, and includes insights into audit sampling in practice based on research co-authored by Steve Glover. This edition also includes coverage of the newly revised COSO Internal Control-Integrated Framework. Because of their increasing complexity and importance to the audit process, this edi- tion also includes discussions of auditing the tax liability and auditing fair value measurements. The book also includes coverage of professionalism and ethics consistent with the AICPA’s newly reorganized Code of Professional Conduct. Finally, the authors took a hands-on role in improving this edition’s test bank, online quizzes, instructor PowerPoint slides, and the instructor’s manual.

While we are very much aware of the extra investment required when a book rolls to a new edition, we believe that we owe it to our colleagues and students to provide the most up-to-date materials possible so their hard work and energy in teaching and studying represents an investment in the latest, most current concepts, delivered in the most understand- able way possible. We are confident that the changes made in this edition will make it easier for you to teach effectively and for your students to learn more efficiently and more deeply.

Thank you for your support of this text and the many compliments we have received regarding past editions. We are gratified by the enthusiastic response the text has received as we have done our best to create a clear, easy-reading, student-friendly auditing textbook. As always, we welcome your feedback and suggestions, and we hope you will be pleased with the updates we have made in this new edition.

With warm regards,

William F. Messier, Jr. Steven M. Glover Douglas F. Prawitt

Final PDF to printer

 

 

ix

mes32502_fm_i-xxx.indd ix 10/20/15 11:48 AM

The 10th Edition includes the following important features and enhancements:

∙ A “professional judgment” module, designed to accelerate the development of the student’s profes- sional judgment and based on the AAA Deloitte/Wildman Award-winning KPMG Professional Judg- ment monograph, is now included in the print version of the book. Additional resources relating to this module are available through KPMG’s University Connection website.

∙ Increased use of “Stop and Think” questions throughout the book to encourage students to more fully internalize key concepts.

∙ User-focused, user-friendly improvements. ∙ Chapter 2 has been updated for recent changes in the audit environment, Chapter 3 presents the latest

information available on major firms’ audit guidance relating to materiality, Chapter 6 reflects COSO’s new internal control framework, and Chapter 19 includes coverage of professional conduct consistent with the AICPA’s newly reorganized Code of Professional Conduct.

∙ Increased use of Practice Insights that provide a link from the textbook material to the real world. ∙ The introduction of IDEA audit software. IDEA is a powerful and user-friendly data analysis tool

designed to help auditors perform data analysis, audit sampling, and other audit procedures efficiently and effectively. IDEA is illustrated in Chapters 8 and 9 and there are end-of-chapter IDEA assignments and problems for hands-on application throughout the book.

∙ Improved descriptions of the hands-on EarthWear Mini-Cases that provide students with opportunities to apply audit professional judgment and practice audit procedures.

∙ Clarified explanations of technical business and accounting jargon. ∙ Improved linkage between chapter content and end-of-chapter material. ∙ References to auditing standards reflect the new codification of AICPA ASB clarity standards.

Here is a sampling of the improvements made in recent editions:

Chapter 1, An Introduction to Assurance and Financial Statement Auditing ∙ Discussion of fundamental concepts of auditing streamlined and clarified

Chapter 2, The Financial Statement Auditing Environment ∙ Updated to reflect changes in audit environment ∙ Includes AICPA’s “principles underlying an audit” in addition to PCAOB’s traditional set of “generally

accepted auditing standards”

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

We value our customers and so we ensure that what we do is 100% original..
With us you are guaranteed of quality work done by our qualified experts.Your information and everything that you do with us is kept completely confidential.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

The Product ordered is guaranteed to be original. Orders are checked by the most advanced anti-plagiarism software in the market to assure that the Product is 100% original. The Company has a zero tolerance policy for plagiarism.

Read more

Free-revision policy

The Free Revision policy is a courtesy service that the Company provides to help ensure Customer’s total satisfaction with the completed Order. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.

Read more

Privacy policy

The Company is committed to protect the privacy of the Customer and it will never resell or share any of Customer’s personal information, including credit card data, with any third party. All the online transactions are processed through the secure and reliable online payment systems.

Read more

Fair-cooperation guarantee

By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
error: Content is protected !!
Open chat
1
You can contact our live agent via WhatsApp! Via +1 817 953 0426

Feel free to ask questions, clarifications, or discounts available when placing an order.

Order your essay today and save 30% with the discount code STARS