WGU D251 - ADVANCED AUDITING| 297 QUESTIONS AND ANSWERS.

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. expected misstatement The level of misstatement that the auditor expects to detect, and it is based on projected misstatements in prior-year audits, results of other substantive tests, professional judgment, and knowledge of changes in personnel and the accounting system. expected population deviation rate An anticipation of the deviation rate in the entire population. Also referred to as the expected failure rate. extent of risk response 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. Factual misstatements Misstatements that have been specifically identified and about which there is no doubt. Also referred to as known misstatements.