Book Reviews

Abstract

ALVIN A. ARENS, RANDAL J. ELDER, and MARK S. BEASLEY, Auditing and Assurance Services: An Integrated Approach, Thirteenth Edition (Upper Saddle River, NJ: Prentice Hall, Inc., 2010, pp. xix, 854).The thirteenth edition of Auditing and Assurance Services: An Integrated Approach provides a necessary technical update to the 12th edition resulting from a rapidly changing audit environment. New to this edition is the coverage of PCAOB Standard 5 (the audit of internal control over financial reporting), SAS 112–115 (audit risk assessment and communications to governing bodies), and international auditing standards.The text is divided into six sections. The first five chapters provide the reader with an understanding of the auditing profession and its responsibility to the public. It provides the background for performing financial statement audits. The second section, Chapters 6 through 13, presents the audit process, including management and auditor responsibilities and objectives, the nature of evidence, materiality, risk, internal controls, and the impact of information technology on the audit process. The third section, Chapters 14 through 17, illustrates the application of the audit process to the sales and collections cycle. Section Four, Chapters 18 through 23, describes the application of the audit process to the other segments/cycles of the audit. Chapter 24 covers the completion of the audit, and the final section, Chapters 25 and 26, is used to describe other assurance and nonassurance services. The authors' use of multiple sections of smaller, topic-specific chapters makes it easy for instructors to tailor the course coverage to their specific needs by dropping or rearranging chapter materials.The text is written with an emphasis on the application of auditing concepts to real-world audit settings. This is accomplished by providing numerous illustrations of how auditing principles are applied in practice. While this approach can assist students in understanding the audit process, it can also cause students to have difficulty in distinguishing between the established auditing standard and the application process. For example, the authors' discussion of the auditor's use of audit objectives to obtain evidence to support management's financial statement assertions can result in students placing greater importance on the authors' objectives than the management assertions established by auditing standards. A strength of the textbook is the authors' extensive use of figures and tables to summarize and organize materials for the student.The book provides an extensive array of supplemental materials for both the student and the instructor. The end-of-chapter materials are good and include review questions, CPA exam multiple choice questions, discussion questions, problems, cases, ACL incorporated problems, an integrated application case that carries throughout the text, and Internet problems. The one weakness with these materials is that the authors only provide the correct answer for multiple choice questions and do not provide any discussion on why the chosen answer is correct.There is a reason this book is in its thirteenth edition. It provides a current, in-depth examination of the audit process. It is designed so it can easily be adapted to a wide variety of different approaches to teaching auditing. The textbook can be used in a single auditing course or its material can be divided into a two-course audit sequence. This textbook should be given serious consideration by anyone teaching an undergraduate or graduate auditing course.DAVID P. DONNELLYProfessorUniversity of Missouri–Kansas CityKAREN L. HOOKS, Auditing and Assurance Services: Understanding the Integrated Audit (Hoboken, NJ: John Wiley & Sons, 2011, pp. xxxiv, 926).This undergraduate auditing text is organized into four sections. Part I, “Introduction,” presents an overview of the auditing discipline. Part II, “The Audit Environment,” discusses ethics and legal liability issues related to auditing. Part III, “Executing an Integrated Audit,” is the heart of the textbook and presents a comprehensive and chronological treatment of the activities associated with an integrated audit. Finally, Part IV, “Additional Transaction Cycles and Other Topics,” is devoted principally to auditing issues pertinent to the individual transaction cycles not addressed in Part III.Professor Hooks describes the overall orientation of her textbook as follows: “This textbook uses the audit of a public company as its basic platform and consequently teaches an integrated audit.” This orientation provides a logical pedagogical style for instructors to apply in the current “big GAAS” versus “little GAAS” environment. The organization and presentation style of the textbook readily allows instructors and students alike to peel away the features of a public company audit that do not apply to audits of private companies.The extensive use of appendices is a strong feature of this text. Several marginal or highly technical auditing topics have been relegated to the 17 appendices in this textbook. This feature will make it much easier for instructors to develop a customized course that parallels their individual approach to teaching undergraduate auditing. Instructors will also appreciate the “Chapter Resources” box at the beginning of each chapter. Those boxes are an excellent reference source for students who have an interest in delving further into specific topics introduced within individual chapters. Although not a unique feature, the “Key Terms” section for each chapter of this textbook seems to be considerably more comprehensive than the comparable feature of competing texts. Finally, the use of a wide variety of industry contexts to illustrate auditing concepts and procedures is a differentiating feature of this textbook. This latter feature promotes a “case-like” treatment of important auditing topics that should enhance students' understanding of them.On the downside, the eight new PCAOB standards issued en masse in 2010 are not integrated into this textbook. Those standards have not yet been formally approved by the SEC, but they will almost certainly be approved by the time you read this review. Likewise, the supplements for this text are not as extensive as those available for some of the more mature undergraduate auditing texts. Finally, in future editions, Professor Hooks might consider collapsing the introductory material in the first three chapters into two chapters.This is a first edition textbook that merits serious consideration for use in the undergraduate auditing course. The text seems considerably less laborious or encyclopedic than most competing texts, the writing style is unpretentious, and the presentation of key topics is generally concise and crisp. In summary, Professor Hooks has developed a new entry in the undergraduate auditing textbook market that is not a thinly veiled replica of the existing texts in that market.MICHAEL C. KNAPPProfessorThe University of OklahomaTIMOTHY J. LOUWERS, ROBERT J. RAMSAY, DAVID H. SINASON, JERRY R. STRAWSER, and JAY C. THIBODEAU, Auditing and Assurance Services, Fourth Edition (New York, NY: McGraw-Hill Irwin, 2011, pp. xxiv, 915).The fourth edition of this text differs from the third edition primarily in that it includes extensive coverage of PCAOB Auditing Standard 5. Additionally, each chapter/module has been updated from the third edition to incorporate new standards (including ISAs), respond to changes in the audit and business environment, or provide more recent examples. Coverage of standards in this edition includes, among others: PCAOB AS 1–7, ASB SAS 1–116, IAASB ISA 200–720, ASB SSAE 10–15, and ASB SSAR 1–18.The fourth edition is divided into three parts. Part One comprises three chapters on the auditing environment, the basics of auditing and assurance services, professional standards, and an introduction to management fraud and audit risk. Part Two has nine chapters that cover the financial statement audit from planning to substantive and internal control testing by cycle to reporting and wrap-up. Part Three includes eight modules devoted to other audit topics, including sampling, other public accounting services, professional ethics, legal liability, and more. Part Three also includes a section with eight comprehensive cases drawn from real audit occurrences.What sets this text apart from other auditing texts is the abundance and richness of available information and resources. Each chapter/module provides real audit stories as in-chapter examples and extensive end-of-chapter questions that vary in difficulty level, some with a CPA examination focus. The chapters that cover auditing of specific cycles include both tests of controls and substantive testing, and are then followed by fraud cases and possible extended audit procedures for that particular cycle. The text and related website offer a comprehensive audit practice set (Apollo Shoes, Inc.), electronic working papers, access to CPA review course simulation questions, a selection of comprehensive audit cases, and also include ACL software and projects. In addition to standard coverage of audit topics, adopters can choose from eight modules in Part Three of the text for additional topics and extended coverage of topics. The authors also provide a list of relevant standards at the beginning of each chapter/module, as well as a complete listing of standards on the inside front and back covers for quick reference.For adopters of this text, this abundance of topics and resources represents an opportunity to design a course specific to their needs with a variety of homework, class discussion, and project choices. Instructors with experience who are switching from another text will likely appreciate the volume and richness of these available options. However, new audit instructors may find it difficult to choose among all the available options in designing a one-semester course and would benefit if additional sample syllabi or a menu of course design options were available. This text could easily be adapted for use in a two-semester audit sequence of courses.In summary, the fourth edition of this text includes significant, relevant changes from the third edition by including coverage of new standards, changes in the business and audit environment, and by including recent, relevant examples throughout. The text and related website continue to offer an abundance of topics and resources to tailor a course, which poses both a challenge to instructors in deciding what to include and what not to include, and significant opportunities to incorporate a wide variety of topics and activities in an introductory audit course.ANGELA M. WOODLANDAssistant ProfessorMontana State UniversityWILLIAM F. MESSIER, JR., STEVEN M. GLOVER, and DOUGLAS F. PRAWITT, Auditing & Assurance Services: A Systematic Approach, Seventh Edition (New York, NY: McGraw Hill Higher Education, pp. xxx, 779).Auditing & Assurance Services: A Systematic Approach, Seventh Edition, is the one of the most complete, thorough, and accurate texts in auditing available today, while at the same time being relatively easy to understand. The seventh edition continues and improves on previous editions, providing technically updated auditing information through SAS 116, and SSAEs through 10. It has a copyright date of 2010, but does not include information on any AICPA standards issued in 2010 (SASs 117–120). In addition, this edition mentions nothing about the joint ASB-IAASB Clarity Project or the soon-to-be-issued clarified standards. Therefore, this edition is rapidly becoming obsolete, and will soon need a complete revision. The book contains minimal coverage (only four pages) of accounting and review services, an area that is receiving expanded coverage on the CPA examination. The text is suitable for an undergraduate course in auditing, but would need to be supplemented with additional material at the graduate level.The text is divided into eight parts. Part 1 (Chapters 1 and 2) covers an introduction to assurance and financial statement auditing. Part 2 (Chapters 3 and 4) covers basic auditing concepts of risk assessment, materiality, and evidence. Part 3 (Chapters 5 through 7) covers the audit process: planning, types of tests, and understanding and auditing internal control. Part 4 (Chapters 8 and 9) covers nonstatistical and statistical sampling tools for tests of controls and substantive tests. Part 5 (Chapters 10 through 16) covers application of the audit process to the various cycles of the business: revenue, purchasing, human resources, inventory management, financing and investing assets, financing and investing liabilities and equities, and cash and investments. Part 6 (Chapters 17 and 18) covers completion of the audit and basic audit reports. Part 7 (Chapters 19 and 20) covers ethical and legal responsibilities of auditors, while Part 8 (Chapter 21) covers assurance, attestation, and internal audit services.The introduction to each chapter includes references to relevant accounting and auditing pronouncements for further reading, if desired. Figures and tables are easy to read and interpret. This is particularly true for tables in Chapters 10–16 (the audit process) that summarize audit assertions, possible misstatements, control activities, tests of controls, and substantive tests. Excellent. The writing style is crisp, clear, and concise throughout. Each chapter contains “Practice Insights” which highlight important and interesting real-world trends in the field. Each chapter contains a glossary of key terms with clear explanations, followed by review questions, multiple choice, and simulation questions, many of which are CPA exam adapted. The book features an integrated case study (Earthwear Clothiers) based on an outdoor sports clothing company that should be interesting to students. The annual report of the company is included in Chapter 1, and successive chapters include relevant application cases.The book's website is a strength. In addition to multiple choice quiz questions, it contains integrated “mini-cases” based on EXCEL template methodology, illustrating some (if minimal) use of spreadsheets and electronic working papers. The website also contains reference to CPA Review simulations (approximately one per chapter).The book package also includes free software illustrating the use of computer audit software, using the popular ACL platform. However, a drawback is that these cases are often too brief to be of much instructional use. The authors should consider expanding these in future editions to include more relevant and challenging exercises.There are a number of good competitors to this text. However, the authors should be commended for revising and reworking this text to make it so technically complete, updated, and usable not only in class but in practice. It should be kept by students as a part of their reference library after they graduate.C. WILLIAM (BILL) THOMASProfessor and Master TeacherBaylor UniversityLARRY E. RITTENBERG, KARLA M. JOHNSTONE, and AUDREY A. GRAMLING, Auditing: A Business Risk Approach, Seventh Edition (Mason, OH: South-Western Cengage Learning, 2010, pp. xviii, 942).Auditing: A Business Risk Approach, Seventh Edition, reflects the retirement of coauthor Bradley Schwieger, and the addition of Audrey Gramling as a coauthor. This edition has been updated with an increased emphasis on professional judgment and decision making, the ever-changing regulatory environment—to include Section 404 of Sarbanes-Oxley, and a framework for performing an integrated audit of financial statements and the effectiveness of internal control over financial reporting as mandated by the Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 5.The text follows a five-step process in conducting an audit, beginning with (1) client acceptance and retention, followed by (2) gaining an understanding of the client, (3) obtaining evidence with respect to internal controls, (4) obtaining substantive audit evidence, and (5) completing the audit. The general framework describes environmental features affecting audits to include principles and rules, regulation, corporate governance, judgment and decision making, and professional liability.Each chapter begins with an overview, followed by a “professional judgment in context” section representing a real-life example related to the chapter's topic. Following each example are a number of questions for students to consider as they read the remainder of the chapter. This methodology helps students place in context the authoritative literature as it relates to the example provided.Throughout each chapter are a number of sidebars providing practical pointers and other historical events related to the content. The authors are to be commended on maintaining an up-to-date auditing text given the vast changes occurring from the Securities and Exchange Commission's rule-making process and the PCAOB's standard-setting agenda. A strength of this edition is the ability by instructors to scale the breadth and depth of coverage over the course of a semester. Throughout, instructors may choose to assign end-of-chapter assignments related to Ford Motor Company and Toyota Motor Company. An advantage is the option to use Ford and Toyota selectively for certain chapters, based on instructors' preferences, or throughout the text. The Ford and Toyota resources do not “carry over” from previous chapters and thus may be assigned as desired to supplement class lectures and the text.Another strength of the seventh edition is the inclusion of the computerized practice case (Biltrite) into each chapter. In previous editions, the Biltrite case was included as an appendix, but is now incorporated into the chapters as applicable. Each chapter is followed by a number of multiple choice questions for students to test their knowledge of concepts. Importantly, each chapter contains a large number of discussion and research questions designed to stimulate critical thinking that instructors may select from as incremental assignments.A potential drawback for certain instructors is the sequencing of material related to auditors' reports near the end of the text (Chapter 16). Given that the auditor's opinion is the ultimate deliverable in an audit engagement, instructors may consider assigning this chapter relatively early in the semester. In this manner, students may better appreciate the importance of testing the effectiveness of internal control over financial reporting and substantive auditing procedures in the eventual formulation of the auditor's opinions.This seventh edition is recommended for adoption by instructors who have not previously taught auditing, or for those unsatisfied with an alternative text. The text is also worthy of consideration for adoption for instructors who are satisfied with their current auditing text, yet seeking a text that is perhaps more customizable and scalable.BRIAN DAUGHERTYAssistant ProfessorUniversity of Wisconsin–MilwaukeeRAY WHITTINGTON and KURT PANY, Principles of Auditing & Other Assurance Services, Eighteenth Edition (New York, NY: McGraw-Hill Irwin, 2012).Ray Whittington and Kurt Pany will soon publish the eighteenth edition of their text, Principles of Auditing & Other Assurance Services. The organization of their text is similar to that used in many audit textbooks. The first few chapters describe the demand for auditing, professional standards including ethics, and the auditor's legal liability. These are followed by chapters devoted to audit planning, risk assessment, and audits of internal control. The next section of chapters provides a detailed description of both internal control testing and substantive audit procedures using a balance sheet approach, rather than the cycle approach used by many other authors. The last section of materials covers audit reports, integrated audits of public companies, other assurance services, and other types of auditing. Such organization makes the text easily suitable for use in both a first auditing course and an advanced course, by dividing the material appropriately between courses.The eighteenth edition has been revised throughout the text to include the most recent standards and to incorporate changes resulting from the AICPA's Clarity Project. The new edition also includes “other objective format questions” in the book and the test bank for every chapter. This question format is consistent with recent modifications to the auditing section of the CPA exam to include more short simulation problems, rather than a few lengthy ones. Of course, the new edition also retains an adequate quantity of review questions, short answer and multiple choice questions, problems, cases, and a multiple-part comprehensive case. Spreadsheet problems are also included, as are ethics cases. The use of ACL is integrated within the text.There are many nice features of this textbook. In many instances, some topics, including audit reports, are briefly introduced in an earlier chapter and then covered in detail in a later chapter. This enhances the text's usability in both an introductory and an advanced course. The chapters are logically organized and provide examples and illustrations of concepts that are not overly difficult. For example, the chapters relating to substantive testing illustrate and link source documents to posting in journals, accounts, and ledgers, in a manner that is simple and easy to follow. The text provides a nice table comparing international standards to AICPA standards. The team cases provided at the end of each chapter are ideal for in-class work and small group discussion. The level of rigor and length of the cases are such that teams should be able to complete them in a reasonable amount of time.In summary, the authors have done an excellent job of updating this longstanding audit text to not only include current standards and issues, but also to incorporate the most up-to-date problem format used in the CPA exam. The text provides a thorough coverage of auditing and assurance services for both private and public companies, yet presents the material in a user-friendly manner, enhancing its appeal to both inexperienced and experienced instructors. Careful consideration of this book is recommended for use in both introductory and advanced auditing courses.ELIZABETH A. PAYNEAssistant ProfessorUniversity of Louisville