WGU - D251 Advanced Auditing Questions and Answers 100% Correct.
Performance Materiality is also known as _____________. - ANSWER-Tolerable Error
Auditor uses Performance Materiality for ____________. - ANSWER-Determining significant accounts, locations, and audit procedures.
Performance Materiality is what percent of Planning Materiality? - ANSWER-75%
What happens is Performance Materiality is set too high? - ANSWER-Auditor might not perform sufficient procedures to detect material misstatements.
What happens if Performance Materiality is set too low? - ANSWER-Auditor might perform more substantive procedures than needed.
Overall Materiality is also known as _________. - ANSWER-Planning Materiality
Auditors use Overall Materiality to ___________. - ANSWER-Determine whether financial statements overall are materially correct.
What does Posting Materiality signify? - ANSWER-The misstatements identified throughout the audit that will be considered at the end of the audit in determining whether the financial statements are materially correct.
What percentage is Posting Materiality commonly set at? - ANSWER-5% of Planning Materiality
What is Materiality? - ANSWER-The magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
What makes a fact Material? - ANSWER-If there is a substantial likelihood that a reasonable investor would have viewed the fact as having significantly altered the total mix of information made available.
What is the materiality level that an auditor uses for determining significant accounts, significant locations, and audit procedures for those accounts and locations? - ANSWER-Performance Materiality An auditor has determined performance materiality has been set too high at the beginning of the audit. Which procedures should this auditor consider to detect misstatements? - ANSWER-The auditor should perform additional substantive audit procedures.
Which risk exists at the overall financial statement level and at the assertion level and can be categorized as involving inherent risk and control risk? - ANSWER-Risk of material misstatement
What represents an identified and assessed risk of material misstatement that requires special audit consideration? - ANSWER-Significant risk
What is the impact on the amount of acceptable audit risk if an auditor believes the chance of financial failure of a client is high? - ANSWER-The acceptable audit risk is reduced.
Which factor should lead an auditor to assess inherent risk as high? - ANSWER-The account balance consists of a large number of complex transactions.
Which factor would lead an auditor to assess client business risk at a higher level? - ANSWER-The client's use of information technology is incompatible across systems and processes.
An auditor determines overall materiality of $500,000 would be material to the income statement and $1,000,000 would be material to the balance sheet. Which amount would
an auditor typically assess performance materiality to be for this client? - ANSWER-75%
of $500,000
At which percentage do auditors commonly set posting materiality? - ANSWER-5% of planning materiality
What is Client Business Risk? - ANSWER-Risks affecting the business operations and potential outcomes of an organization's activities.
What does the Risk of Material Misstatement represent? - ANSWER-The Inherent and Control Risks
Who controls the Risk of Material Misstatement? - ANSWER-The Client
What happens to Detection and Audit Risk when Risk of Material Misstatement is high? - ANSWER-Detection Risk is lowered to reduce the Audit Risk to an acceptable level.
What is Inherent Risk? - ANSWER-The likelihood of material misstatement without considering the effects of internal control What is Control Risk? - ANSWER-The risk of a misstatement occurring or not being prevented by internal controls
What is audit risk? - ANSWER-The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
What is detection risk? - ANSWER-Risk that the auditors' procedures will lead them to conclude that a material misstatement does not exist in an assertion when in fact such misstatement does exist.
What is the audit risk model? - ANSWER-Audit Risk = Inherent Risk x Control Risk x Detection Risk
What is engagement risk? - ANSWER-Risk of potential for loss to the auditor because of being associated with the client.
What is the relationship between Audit Risk and Engagement Risk? - ANSWER-Inverse
What percentages does Audit Risk use? - ANSWER-1%-5%
What amount of evidence is needed as Detection Risk decreases? - ANSWER-More evidence is required with a lower Detection Risk
What is a Significant Risk? - ANSWER-An identified and assessed risk of material misstatement that requires special audit consideration
Which has a higher Inherent Risk - Cash or Large Equipment - ANSWER-Cash - Easily stolen
What are some factors that increase Inherent Risk? - ANSWER-Easily stolen, complex, estimations, high volume and nonroutine
What are the 5 Transaction Assertions? - ANSWER-Occurrence, Completeness, Accuracy, Cutoff and Classification
What is the Occurrence Assertion? - ANSWER-Transactions and events that have been
recorded actually occurred and pertain to the entity.
What is the Completeness Transaction Assertion? - ANSWER-All transactions and events that should have been recorded have been recorded.
What is the Accuracy Transaction Assertion? - ANSWER-Amounts and other data relating to recorded transactions and events have been recorded appropriately.
What is the Cutoff Transaction Assertion? - ANSWER-Transactions and events have been recorded in the correct accounting period.
Performance Materiality is also known as _____________. - ANSWER-Tolerable Error
Auditor uses Performance Materiality for ____________. - ANSWER-Determining significant accounts, locations, and audit procedures.
Performance Materiality is what percent of Planning Materiality? - ANSWER-75%
What happens is Performance Materiality is set too high? - ANSWER-Auditor might not perform sufficient procedures to detect material misstatements.
What happens if Performance Materiality is set too low? - ANSWER-Auditor might perform more substantive procedures than needed.
Overall Materiality is also known as _________. - ANSWER-Planning Materiality
Auditors use Overall Materiality to ___________. - ANSWER-Determine whether financial statements overall are materially correct.
What does Posting Materiality signify? - ANSWER-The misstatements identified throughout the audit that will be considered at the end of the audit in determining whether the financial statements are materially correct.
What percentage is Posting Materiality commonly set at? - ANSWER-5% of Planning Materiality
What is Materiality? - ANSWER-The magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
What makes a fact Material? - ANSWER-If there is a substantial likelihood that a reasonable investor would have viewed the fact as having significantly altered the total mix of information made available.
What is the materiality level that an auditor uses for determining significant accounts, significant locations, and audit procedures for those accounts and locations? - ANSWER-Performance Materiality An auditor has determined performance materiality has been set too high at the beginning of the audit. Which procedures should this auditor consider to detect misstatements? - ANSWER-The auditor should perform additional substantive audit procedures.
Which risk exists at the overall financial statement level and at the assertion level and can be categorized as involving inherent risk and control risk? - ANSWER-Risk of material misstatement
What represents an identified and assessed risk of material misstatement that requires special audit consideration? - ANSWER-Significant risk
What is the impact on the amount of acceptable audit risk if an auditor believes the chance of financial failure of a client is high? - ANSWER-The acceptable audit risk is reduced.
Which factor should lead an auditor to assess inherent risk as high? - ANSWER-The account balance consists of a large number of complex transactions.
Which factor would lead an auditor to assess client business risk at a higher level? - ANSWER-The client's use of information technology is incompatible across systems and processes.
An auditor determines overall materiality of $500,000 would be material to the income statement and $1,000,000 would be material to the balance sheet. Which amount would
an auditor typically assess performance materiality to be for this client? - ANSWER-75%
of $500,000
At which percentage do auditors commonly set posting materiality? - ANSWER-5% of planning materiality
What is Client Business Risk? - ANSWER-Risks affecting the business operations and potential outcomes of an organization's activities.
What does the Risk of Material Misstatement represent? - ANSWER-The Inherent and Control Risks
Who controls the Risk of Material Misstatement? - ANSWER-The Client
What happens to Detection and Audit Risk when Risk of Material Misstatement is high? - ANSWER-Detection Risk is lowered to reduce the Audit Risk to an acceptable level.
What is Inherent Risk? - ANSWER-The likelihood of material misstatement without considering the effects of internal control What is Control Risk? - ANSWER-The risk of a misstatement occurring or not being prevented by internal controls
What is audit risk? - ANSWER-The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
What is detection risk? - ANSWER-Risk that the auditors' procedures will lead them to conclude that a material misstatement does not exist in an assertion when in fact such misstatement does exist.
What is the audit risk model? - ANSWER-Audit Risk = Inherent Risk x Control Risk x Detection Risk
What is engagement risk? - ANSWER-Risk of potential for loss to the auditor because of being associated with the client.
What is the relationship between Audit Risk and Engagement Risk? - ANSWER-Inverse
What percentages does Audit Risk use? - ANSWER-1%-5%
What amount of evidence is needed as Detection Risk decreases? - ANSWER-More evidence is required with a lower Detection Risk
What is a Significant Risk? - ANSWER-An identified and assessed risk of material misstatement that requires special audit consideration
Which has a higher Inherent Risk - Cash or Large Equipment - ANSWER-Cash - Easily stolen
What are some factors that increase Inherent Risk? - ANSWER-Easily stolen, complex, estimations, high volume and nonroutine
What are the 5 Transaction Assertions? - ANSWER-Occurrence, Completeness, Accuracy, Cutoff and Classification
What is the Occurrence Assertion? - ANSWER-Transactions and events that have been
recorded actually occurred and pertain to the entity.
What is the Completeness Transaction Assertion? - ANSWER-All transactions and events that should have been recorded have been recorded.
What is the Accuracy Transaction Assertion? - ANSWER-Amounts and other data relating to recorded transactions and events have been recorded appropriately.
What is the Cutoff Transaction Assertion? - ANSWER-Transactions and events have been recorded in the correct accounting period.
