WGU D251 - Advanced Auditing Exam 2023 with complete
solution
misstatement
An error, either intentional or unintentional, that exists in a transaction or financial
statement account balance.
alternative procedures
Procedures used to obtain evidence about the existence and valuation of accounts
receivable when a positive confirmation is not returned, including examining cash
collected after the confirmation date and vouching unpaid invoices to customers' orders,
sales orders, shipping documents, and sales invoices.
Altman Z-scores
A series of ratios that have predictive power in indicating the likelihood of bankruptcy.
This score is named for the person who first introduced the concept and associated
measurement.
attribute
A characteristic of the population of interest to the auditor.
Attributes sampling
A statistical sampling method used to estimate the rate of control procedure failures
based on selecting one sample and performing the appropriate audit procedure.
Audit Risk
The risk that the auditor expresses an inappropriate audit opinion when the financial
statements are materially misstated.
Audit Risk Model
Audit Risk = Inherent Risk X Control Risk X Detention Risk
audit risk model
A conceptual depiction of the relationship between inherent risk, control risk, detection
risk, and audit risk.
Audit sampling
The application of an audit procedure to less than 100% of the items within an account
balance or class of transactions for the purpose of evaluating some characteristic of the
balance or class.
audit scope
The range of accounts and transactions that the auditor evaluates, along with the
amount of evidence that they gather, assessments of which accounts and transactions
are material, as well as the critical areas where the auditor employed significant
assumptions and made associated professional judgments.
auditor business risk
This risk reflects the potential for loss to the auditor that the client poses, including being
a publicly traded client, not being a profitable engagement, damaging the auditor's
reputation, and/or potential litigation relating to the engagement.
auditor-detected misstatements
Such a misstatement occurs when, during the audit, the auditor comes to find that there
exists an error in the recording of a particular transaction, regardless of whether it was
intentional or unintentional.
,automated purchasing system
A networked software system that links a company's website to other vendors whose
offerings and prices have been preapproved by appropriate management.
Basic precision
The amount of uncertainty associated with testing only a part of the population
(sampling risk). Basic precision is calculated as the sampling interval multiplied by a
confidence factor.
big data
High volume, high velocity, and/or high variety information assets that require new
forms of processing to enable enhanced decision making, insight discovery, and
process optimization.
Block sampling
A sampling technique that involves selecting a sample that consists of contiguous
population items, such as selecting transactions by day or week.
brainstorming
A group discussion designed to encourage auditors to creatively assess client risks,
particularly those relevant to the possible existence of fraud in the organization.
business intelligence
The process of transforming all of the raw data that companies (providers) collect from
their various operations into actionable information.
busy season
An error, either intentional or unintentional, that exists An intensive time of the year
during which the auditor faces the greatest deadline pressure and work volume based
upon the need to provide assurance over the client's financial reports.
Client business risks
Risks affecting the business operations and potential outcomes of an organization's
activities.
Collectibility
The risk that the seller will be unable to collect the entitled contractual consideration
from the customer.
component
An entity or business activity for which group or component management prepares
financial information that is required by the applicable financial reporting framework to
be included in the group financial statements.
component auditor
An auditor who performs work on the financial information of a component that will be
used as audit evidence for the group audit. A component auditor may be part of the
group engagement partner's firm, a network firm of the group engagement partner's
firm, or another firm.
concurring partner review
A review at the end of each audit conducted by an experienced auditor, usually a
partner, who was not a part of the audit team, but who has appropriate competence,
independence, integrity, and objectivity. The purpose of this review is to help make sure
that the audit and audit documentation are complete and support the audit opinion on
the financial statements and, for public companies, on the client's internal controls.
Control Risk
, The risk that a misstatement that could occur in an assertion about a class of
transaction, account balance, or disclosure and that could be material, either individually
or when aggregated with other misstatements, will not be prevented, or detected and
corrected, on a timely basis by the entity's internal control.
corruption perception index
A ranking put forth by Transparency International that ranks countries according to the
extent to which people believe corruption exists; the ranking includes about 200
countries and ranks them on a scale from 0 to 10 (0 5 high corruption; 10 5 low
corruption).
critical audit matter
Any matter that was communicated or required to be communicated to the audit
committee, relating to accounts or disclosures material to the financial statements, and
involving especially challenging, subjective, or complex auditor judgment.
Cycle counts
Periodic testing of the accuracy of the perpetual inventory record by counting all
inventories on a cyclical basis.
Data analytics tools
Qualitative and quantitative techniques and processes that auditors use to enhance
their productivity and effectiveness; auditors extract, categorize, identify and analyze
patterns or trends in the data; data analytics tools vary according to organizational
requirements.
Detection Risk
The risk that the procedures performed by the auditor to reduce audit risk to an
acceptably low level will not detect a misstatement that exists and that could be
material, either individually or when aggregated with other misstatements.
emphasis-of-matter paragraph
A paragraph included in the auditor's report that is required by GAAS, or is included at
the auditor's discretion, and that refers to a matter appropriately presented or disclosed
in the financial statements that, in the auditor's professional judgment, is of such
importance that it is fundamental to users' understanding of the financial statements.
engagement quality review
A review at the end of each audit conducted by an experienced auditor, usually a
partner, who was not a part of the audit team, but who has appropriate competence,
independence, integrity, and objectivity. The purpose of this review is to help make sure
that the audit and audit documentation are complete and support the audit opinion on
the financial statements and, for public companies, on the client's internal controls.
engagement risk
This risk reflects the potential for loss to the auditor that the client poses, including being
a publicly traded client, not being a profitable engagement, damaging the auditor's
reputation, and/or potential litigation relating to the engagement.
exceptions
Differences between a customer's records and the client's records reported on positive
or negative confirmations.
expected failure rate
An anticipation of the deviation rate in the entire population. Also referred to as the
expected failure rate.
solution
misstatement
An error, either intentional or unintentional, that exists in a transaction or financial
statement account balance.
alternative procedures
Procedures used to obtain evidence about the existence and valuation of accounts
receivable when a positive confirmation is not returned, including examining cash
collected after the confirmation date and vouching unpaid invoices to customers' orders,
sales orders, shipping documents, and sales invoices.
Altman Z-scores
A series of ratios that have predictive power in indicating the likelihood of bankruptcy.
This score is named for the person who first introduced the concept and associated
measurement.
attribute
A characteristic of the population of interest to the auditor.
Attributes sampling
A statistical sampling method used to estimate the rate of control procedure failures
based on selecting one sample and performing the appropriate audit procedure.
Audit Risk
The risk that the auditor expresses an inappropriate audit opinion when the financial
statements are materially misstated.
Audit Risk Model
Audit Risk = Inherent Risk X Control Risk X Detention Risk
audit risk model
A conceptual depiction of the relationship between inherent risk, control risk, detection
risk, and audit risk.
Audit sampling
The application of an audit procedure to less than 100% of the items within an account
balance or class of transactions for the purpose of evaluating some characteristic of the
balance or class.
audit scope
The range of accounts and transactions that the auditor evaluates, along with the
amount of evidence that they gather, assessments of which accounts and transactions
are material, as well as the critical areas where the auditor employed significant
assumptions and made associated professional judgments.
auditor business risk
This risk reflects the potential for loss to the auditor that the client poses, including being
a publicly traded client, not being a profitable engagement, damaging the auditor's
reputation, and/or potential litigation relating to the engagement.
auditor-detected misstatements
Such a misstatement occurs when, during the audit, the auditor comes to find that there
exists an error in the recording of a particular transaction, regardless of whether it was
intentional or unintentional.
,automated purchasing system
A networked software system that links a company's website to other vendors whose
offerings and prices have been preapproved by appropriate management.
Basic precision
The amount of uncertainty associated with testing only a part of the population
(sampling risk). Basic precision is calculated as the sampling interval multiplied by a
confidence factor.
big data
High volume, high velocity, and/or high variety information assets that require new
forms of processing to enable enhanced decision making, insight discovery, and
process optimization.
Block sampling
A sampling technique that involves selecting a sample that consists of contiguous
population items, such as selecting transactions by day or week.
brainstorming
A group discussion designed to encourage auditors to creatively assess client risks,
particularly those relevant to the possible existence of fraud in the organization.
business intelligence
The process of transforming all of the raw data that companies (providers) collect from
their various operations into actionable information.
busy season
An error, either intentional or unintentional, that exists An intensive time of the year
during which the auditor faces the greatest deadline pressure and work volume based
upon the need to provide assurance over the client's financial reports.
Client business risks
Risks affecting the business operations and potential outcomes of an organization's
activities.
Collectibility
The risk that the seller will be unable to collect the entitled contractual consideration
from the customer.
component
An entity or business activity for which group or component management prepares
financial information that is required by the applicable financial reporting framework to
be included in the group financial statements.
component auditor
An auditor who performs work on the financial information of a component that will be
used as audit evidence for the group audit. A component auditor may be part of the
group engagement partner's firm, a network firm of the group engagement partner's
firm, or another firm.
concurring partner review
A review at the end of each audit conducted by an experienced auditor, usually a
partner, who was not a part of the audit team, but who has appropriate competence,
independence, integrity, and objectivity. The purpose of this review is to help make sure
that the audit and audit documentation are complete and support the audit opinion on
the financial statements and, for public companies, on the client's internal controls.
Control Risk
, The risk that a misstatement that could occur in an assertion about a class of
transaction, account balance, or disclosure and that could be material, either individually
or when aggregated with other misstatements, will not be prevented, or detected and
corrected, on a timely basis by the entity's internal control.
corruption perception index
A ranking put forth by Transparency International that ranks countries according to the
extent to which people believe corruption exists; the ranking includes about 200
countries and ranks them on a scale from 0 to 10 (0 5 high corruption; 10 5 low
corruption).
critical audit matter
Any matter that was communicated or required to be communicated to the audit
committee, relating to accounts or disclosures material to the financial statements, and
involving especially challenging, subjective, or complex auditor judgment.
Cycle counts
Periodic testing of the accuracy of the perpetual inventory record by counting all
inventories on a cyclical basis.
Data analytics tools
Qualitative and quantitative techniques and processes that auditors use to enhance
their productivity and effectiveness; auditors extract, categorize, identify and analyze
patterns or trends in the data; data analytics tools vary according to organizational
requirements.
Detection Risk
The risk that the procedures performed by the auditor to reduce audit risk to an
acceptably low level will not detect a misstatement that exists and that could be
material, either individually or when aggregated with other misstatements.
emphasis-of-matter paragraph
A paragraph included in the auditor's report that is required by GAAS, or is included at
the auditor's discretion, and that refers to a matter appropriately presented or disclosed
in the financial statements that, in the auditor's professional judgment, is of such
importance that it is fundamental to users' understanding of the financial statements.
engagement quality review
A review at the end of each audit conducted by an experienced auditor, usually a
partner, who was not a part of the audit team, but who has appropriate competence,
independence, integrity, and objectivity. The purpose of this review is to help make sure
that the audit and audit documentation are complete and support the audit opinion on
the financial statements and, for public companies, on the client's internal controls.
engagement risk
This risk reflects the potential for loss to the auditor that the client poses, including being
a publicly traded client, not being a profitable engagement, damaging the auditor's
reputation, and/or potential litigation relating to the engagement.
exceptions
Differences between a customer's records and the client's records reported on positive
or negative confirmations.
expected failure rate
An anticipation of the deviation rate in the entire population. Also referred to as the
expected failure rate.
