WGU D215 Auditing Exam Latest Updated

Document Content and Description Below

Ability of cash flow from operations to cover current debt and dividends - ANSWER Measures ability to cover current debt maturities and dividends with operating cash flow. Accounting estimate - ANS ... WER An approximation of a monetary amount when a precise means of measurement is not available. Accounting records - ANSWER Client's records of the initial accounting entry and supporting documents. Acid-test (quick) ratio - ANSWER Measures ability to meet short-term obligations with liquid assets such as cash, short-term investments, and receivables. Advance shipping notice (ASN) - ANSWER An electronic acknowledgement of a transaction by a supplier indicating goods shipped, prices, and other information such as freight costs or taxes. Adverse interest threat - ANSWER The threat that a CPA will not act with objectivity because the CPA's interests are opposed to the client's interests. Adverse opinion - ANSWER Auditors state the financial statements are not fairly presented due to a pervasively material departure from the applicable financial reporting framework. Advocacy threat - ANSWER The threat that a CPA will promote a client's interests or position to the point that his or her objectivity or independence is compromised. Allowance for sampling risk (ASR) - ANSWER A measure of the uncertainty associated with not sampling the entire population. Analytical procedures - ANSWER Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data; analytical procedures also encompass such investigation, as is necessary, of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. Appropriate - ANSWER Refers to the quality of audit evidence gathered. Assertions - ANSWER Statements or representations, explicit or implied, made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements. Assurance services - ANSWER Independent professional services that improve the quality of information, or its context, for decision makers. Attestation services - ANSWER Services performed when an independent practitioner, or CPA, is engaged to issue a report on subject matter that is the responsibility of another party. Attribute sampling - ANSWER A sampling technique used to reach a conclusion about a population in terms of a rate (frequency) of occurrence. Audit committee - ANSWER A committee of the board of directors responsible for oversight of internal controls, financial reporting and disclosure in the financial statements, regulatory compliance, and the company's independent auditors. Audit data analytics (ADA) - ANSWER The science and art of discovering and analyzing patterns, identifying anomalies, and extracting other useful information in data underlying or related to the subject matter of an audit through analysis, modeling, and visualization for planning and performing the audit. Audit evidence - ANSWER Information gathered by the auditor that is used when forming an opinion on the fair presentation of a client's financial statements. Audit program - ANSWER A listing of details of the audit procedures to be used when testing controls, conducting detailed substantive audit procedures, and completing the audit. Audit risk - ANSWER The risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit sampling - ANSWER The selection and evaluation of less than 100% of the population of audit relevance such that the auditor expects the items selected (the sample) to be representative of the population and, thus, likely to provide a reasonable basis for conclusions about the population. Audit services - ANSWER Services by an independent CPA that provide financial statement users with (1) an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework and, in some cases, (2) an opinion on the effectiveness of ICFR, which enhances the degree of confidence that intended users can place in the financial statements. Audit strategy - ANSWER The determination of the amount of time spent testing the client's internal controls and conducting detailed testing of transactions and account balances. Bank confirmation - ANSWER Correspondence sent directly by the auditors to their client's bank requesting information such as cash held in the bank and details of any loans with the bank and interest rates charged. Basic precision (BP) - ANSWER The amount of estimated misstatement in the population, even if no misstatements are detected in the sample. Benchmarking - ANSWER An audit testing strategy that can be used to allow evidence obtained in prior audit periods to support a conclusion about IT application controls in the current audit period. Bid rigging - ANSWER An employee assists a vendor in winning a competitive bid for a contract; employee is compensated, usually in the form of a cash payment. Bill-and-hold transactions - ANSWER A customer is billed for goods, but goods are not shipped; accounting principles have very narrow criteria for when revenue can be recognized for a bill-and-hold transaction; the transaction must be initiated by the customer, and the customer must have a sound economic reason for purchasing the goods and asking the seller to continue to hold the goods. Board of directors - ANSWER A group that represents the shareholders and is responsible for ensuring the company is being run to benefit the shareholders. Bond trustee - ANSWER A bond trustee is usually a commercial bank or a trust company that is given fiduciary powers by a bond issuer to enforce the terms of a bond indenture; the trustee sees that bond interest payments are made as scheduled and protects the interests of the bondholders if the issuer defaults. Breach of contract - ANSWER A binding agreement is not honored by one or more parties to a contract. Cash earnings per share (CEPS) ratio - ANSWER Shows cash flow capacity of a company for each common share issued. Classical variables sampling - ANSWER A sampling method that uses normal distribution theory to select a sample from a population and evaluate the characteristics of a population based on the results of the sample. Close relative - ANSWER A covered member's parents, nondependent children, brothers and sisters, or stepbrothers or stepsisters. Closing procedures - ANSWER Processes used by a client when finalizing the accounts for an accounting period. Cluster analysis - ANSWER The process of discovering groups (termed clusters in data science) of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar. Common law - ANSWER Law based on justice, reason, and common sense, rather than on absolute rules. Common-size analysis - ANSWER A comparison of account balances to a single line item. Compilation engagement - ANSWER An engagement in which a CPA applies accounting and financial expertise to assist management in the presentation of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework. Compilation of inventory values - ANSWER The client's documentation behind the value for inventory in the general ledger; this shows the quantity of each item in inventory and the values assigned to each item in inventory. Compliance audit - ANSWER An audit to determine whether the entity has conformed with regulations, rules, or processes. Component - ANSWER An entity or business activity whose financial information is required by an applicable financial reporting framework to be included in group financial statements. Component auditor - ANSWER An audit firm that performs work on the financial information of a component that will be used as audit evidence for the group audit. Confirmation bias - ANSWER The tendency to seek or interpret evidence in ways that support pre-existing beliefs or expectations. Consignment inventory - ANSWER Inventory that is sent by its owner (consignor) to an agent (consignee) who undertakes to sell the goods; the consignee has an obligation to pay the consignor when the goods are sold by the consignee. Consignment sales - ANSWER May occur in a transaction between a manufacturer and a wholesaler, when the seller retains title to inventory in the wholesaler's possession, and the sale is completed when the wholesaler sells the inventory forward; a consignment sale may be created in economic substance when the terms of sale create uncertainties about whether the wholesaler assumes risk of ownership upon receipt of goods. Control activities - ANSWER Policies and procedures that help ensure that management directives are carried out. Control environment - ANSWER The attitudes, awareness, and actions of management and those charged with governance concerning the entity's internal control and its importance in the entity. Control exception (deviation) - ANSWER An observed condition that provides evidence that the control being tested did not operate as intended. Control risk - ANSWER The risk that a client's system of internal controls will not prevent or detect a material misstatement on a timely basis. Corporate governance - ANSWER The people, systems, and processes within companies used to ensure that companies are well-managed and that risks are identified and controlled by management and entity personnel. Covered member - ANSWER A person in a position to potentially influence attest decisions or the outcome of an attest engagement. Criminal liability - ANSWER Subjects auditors to penalties of fines or imprisonment or both; the only entities that can bring charges for criminal causes of action are federal or state governments. Critical accounting estimates - ANSWER Accounting estimates whose nature and impact on the financial statements are material because of the high levels of subjectivity and judgment necessary to account for highly uncertain matters. Critical accounting policies and practices - ANSWER Accounting policies and practices that are most important to the portrayal of the company's financial condition and results, and require management's most difficult, subjective, or complex judgments. Critical audit matter (CAM) - ANSWER Any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment. Current file - ANSWER Contains client information that is relevant for the duration of one audit. Current ratio - ANSWER Measures ability to meet short-term obligations as they come due. Cutoff bank statement - ANSWER A bank statement for the period subsequent to the date of the balance sheet that the client requests the bank to send directly to the auditor. Cycle counts - ANSWER The client will frequently identify a small portion of items in the perpetual inventory, count actual inventory, and investigate discrepancies; the client will usually vouch items in the perpetual records to the actual inventory on hand (testing existence), and also count inventory on hand for other items and then trace results to the perpetual records (testing completeness). Debt-to-equity ratio - ANSWER Measures the relative proportion of equity and debt used to finance total assets. Deficiency in internal control (control deficiency) - ANSWER A deficiency in the design or operations of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. Desired level of assurance - ANSWER The level of assurance that the sample is representative of the population; the auditor wants to choose a level of assurance so tolerable misstatement is less likely to be exceeded by the actual misstatement in the population. Detection risk - ANSWER The risk that the auditor's testing procedures will not be effective in detecting a material misstatement. Detective controls - ANSWER Controls applied after transactions have been processed to identify whether fraud or errors have occurred, and to rectify the fraud or errors on a timely basis. Difference method - ANSWER A method of estimating the audited value of the population where the auditor adds (or subtracts) the projected difference between the audited value and book value of the sample to the book value of each stratum. Direct and material effect - ANSWER A situation in which noncompliance with laws and regulations impacts amounts and disclosures already included in the financial statements. Disclaimer of opinion - ANSWER Auditors provide no opinion on the financial statements due to a pervasively material scope limitation or lack of independence from the client. Disclosure committee - ANSWER A committee often led by the CFO or chief legal officer with the purpose of helping ensure that financial statement disclosures are accurate, complete, and fairly presented in all material respects. Dual dating - ANSWER Showing two dates on an audit report; one date is the end of fieldwork and the other is the date of a revision to the financial statements that occurred after the end of fieldwork. [Show More]

Last updated: 3 years ago

Preview 1 out of 23 pages