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96 Cards in this Set
- Front
- Back
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assurance |
The lending of credibility to information. (Pg 3) |
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assurance services |
Independent professional services that improve the quality of information or its context for decision makers. (Pg 8) |
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attestation engagement |
The provision of an opinion on subject matter or an assertion about the subject matter that is the responsibility of another party. (Pg 6) |
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attestation |
The lending of credibility to assertions made by a third party. (pg 3) |
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auditing |
The systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users. (pg 3) |
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business risk |
The risk that an entity will fail to meet its objectives. If the company fails to meet its objectives, the company many ultimately fail. (pg 2) |
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completeness |
All of the transactions, events, assets, liabilities, equity interests, and other disclosures that should have been recorded in the financial statements have been recorded. (Pg 13) |
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cutoff |
Refers to accounting for revenue, expense and other transactions in the proper period. The cutoff date generally refers to the audit client's year-end balance sheet date. (Pg 14) |
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existence |
All assets, liabilities, and equity interests do actually exist. (Pg 13) |
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financial reporting |
Process of providing statements of financial position (balance sheets), results of operations (income statements, statements of shareholders' equity, and statements of comprehensive income), changes in cash flows (statements of cash flows), and accompanying disclosure (footnotes) to outside decision makers who do not have access to management's internal sources of information. A company's accountants, under the direction of its management, perform this function. (pg 11) |
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information risk |
The probability that the information circulated by a company will be false or misleading. (pg 3) |
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internal auditing |
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations. (pg 24) |
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occurrence |
All of the transactions and events that have been recorded are valid, pertain to the entity, and have actually taken place. (pg 13) |
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operational auditing |
The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies. (pg 24) |
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presentation and disclosure |
Management assertion that all transactions and events have been presented correctly and that all relevant information has been disclosed to financial statement users, usually in the footnotes to the financial statements. (pg 13) |
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professional skepticism |
Defined in the professional auditing standards as having an attitude that "includes a questioning mind and a critical assessment of evidence." Essentially, it is an auditor's tendency to not believe management's assertions without corroboration. (pg 17) |
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rights and obligations |
The entity is entitled to all rights of the assets, the liabilities are the legal responsibility of the entity, and all of the disclosed events and transactions pertain to the entity. (pg 13) |
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substantial equivalency |
The process through which CPAs licensed in one state can practice in another state. (pg 29) |
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valuation or allocation |
All assets, liabilities, and equity interest of the entity have been valued in accordance with the relevant financial reporting standards (e.g., GAAP) and are listed in the financial statements at the proper amount and any resulting valuation adjustments have been appropriately recorded in the financial statements. (pg 13) |
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American Institute of Certified Public Accountants (AICPA) |
As related to professional auditing standards, the body charged with establishing auditing standards for the audits of nonpublic entities through Statements on Auditing Standards (SASs) issued by the Auditing Standards Board. Some existing SASs that have not been amended or superseded by the PCAOB serve as Interim Auditing Standards for the audits of public entities. (pg 40) |
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appropriate (audit evidence) |
Characteristics related to the quality (relevance and reliability) of audit evidence. (pg 54) |
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audit plan |
A list of the audit procedures auditors need to perform to gather sufficient appropriate evidence on which to base their opinion on the financial statements. (pg 51) |
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audit procedures |
The specialized actions auditors take to obtain evidence in an engagement. (pg 43) |
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auditing standards |
The audit quality guides that apply to all audits. (pg 43) |
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control risk |
The probability that a material misstatement (error or fraud) will not be prevented or detected on a timely basis by the entity's internal controls. (pg 53) |
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detection risk |
The risk that the audit team's substantive procedures will fail to detect a material misstatement. (pg 55) |
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due care
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A level of performance that would be exercised by reasonable auditors in similar circumstances; auditors are expected to possess the skills and knowledge of others in their profession and are not expected to be infallible. (pg 48)
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engagement quality control review |
An internal evaluation of the significant judgements made by the audit team and the conclusions reached in formulating its report on an engagement conducted by that firm. (pg 60) |
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evidence |
The information used by auditors in arriving at the conclusion on which the audit opinion is based, which includes the underlying accounting data and all available corroborating information. (pg 54) |
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financial reporting framework |
A set of criteria used to determine the measurement, recognition, presentation, and disclosure of material items in the financial statements. (pg 56) |
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generally accepted auditing standards (GAAS) |
Standards that identify necessary qualifications and characteristics of auditors and guide the conduct of the audit examination. (pg 42) |
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independence (in appearance) |
The extent to which others (particularly financial statement users) perceive auditors to be independent. (pg 46) |
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independence (in fact) |
An auditor's mental attitude and impartiality with respect to the client. (pg 46) |
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inherent risk |
The probability that a material misstatement (error or fraud) will occur in an account balance or class of transactions. (pg 53) |
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inspection |
An evaluation of an accounting firm's audit engagements and system of quality control conducted by the PCAOB and required for any firms providing auditing services to public entities. (pg 60) |
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internal control |
The policies and procedures implemented by an entity to prevent or detect material accounting errors or frauds and provide for their correction on a timely basis. (pg 53) |
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materiality |
As it relates to financial reporting, the dollar amount that would influence the lending or investing decisions of financial statement users. (pg 52)
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professional judgment |
The application of relevant training, knowledge, and experience in making informed decisions about appropriate courses of action during the audit engagement. (pg 49) |
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professional skepticism |
A state of mind that is characterized by appropriate questioning and a critical assessment of audit evidence. (pg 48) |
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Public Company Accounting Oversight Board (PCAOB)
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As related to professional auditing standards, the body charged with establishing auditing standards for the audits of public entities through the issuance of Auditing Standards. (pg 40)
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public entity |
An entity that offers registered securities, such as stock and bonds, for sale to the general public. (pg 40) |
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reasonable assurance |
Concept that a GAAS audit may not detect all material misstatements and auditors are not "insurers" or "guarantors" regarding the fairness of the entity's internal controls. (pg 53) |
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risk of material misstatement |
The combined probability that a material misstatement (error or fraud) will occur and not be prevented or detected on a timely basis by the entity's internal controls. (pg 53) |
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substantive procedures |
Procedures used by auditors to obtain assurance as to the fairness of the entity's financial statements. (pg 53) |
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sufficiency (audit evidence) |
The measure of the quantity of the audit evidence (the number of transactions or components evaluated). (pg 55) |
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system of quality control |
The policies and procedures implemented by a firm to provide with reasonable assurance that the firm and its personnel (1) comply with professional standards and applicable regulatory and legal requirements and (2) issue reports that are appropriate in the circumstances. (pg 58) |
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unmodified (or unqualified) opinion |
An opinion which concludes that the financial statements present an entity's financial condition, results of operations, and cash flows in conformity with GAAP. (pg 57) |
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analytical procedures |
The reasonableness tests used to gain an understanding of financial statement accounts and relationships. (pg 99) |
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audit documentation |
The written basis for the auditor's conclusions that provides the necessary support for the auditor's assertions and representations made in the auditor's report. (pg 105) |
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audit engagement partner |
The person with the final responsibility for the audit, and usually an industry specialist. (pg 85) |
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audit plan |
A comprehensive list of the specific audit procedures that the audit team needs to perform to gather sufficient appropriate evidence on which to base their opinion on the financial statements. The professional standards require that the auditor plan each audit engagement, including the establishment of an overall strategy for each audit engagement. (pg 84) |
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audit trail |
The chain of evidence provided through coding, cross-references, and documentation connecting account balances and other summary results with the original transaction source documents. (pg 100) |
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continuing audit files (or permanent files) |
The audit documentation containing information of continuing audit significance for current and past audits of the same client. (pg 106) |
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engagement letter |
This letter sets forth the understanding with the client, including in particular (1) the objectives of the engagement, (2) management's responsibilities, (3) the auditors' responsibilities, and (4) any limitations of the engagement. (pg 82) |
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Form 8-K |
The "special events report" filed with the SEC whenever certain significant corporate events such as changes in control, legal proceedings, and changes of auditor occur. (pg 81) |
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independence in appearance |
The extent to which others (particularly financial statement users) perceive auditors to be independent. (pg 81) |
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independence in fact |
Auditors' mental attitude and impartiality with respect to the client. (pg 81) |
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interim audit work |
The procedures performed several weeks or months before the balance sheet date. (pg 87) |
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lead schedule |
A summary of the accounts in or components of an account group. (pg 107) |
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materiality |
An amount or event that is likely to influence financial statement users' decisions. Thus, material information is a synonym for important information. The emphasis is on the financial statement users' point of view, not on the auditors' or managers' points of view. (pg 88) |
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planning memorandum |
The document summarizing the preliminary analytical procedures and the materiality assessment with specific directions about the effect on the audit. (pg 106) |
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predecessor auditor |
The public accounting firm that has been terminated or has voluntarily withdrawn from an audit engagement (whether the audit has been completed or not). (pg 79) |
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quality assurance partner |
The second audit partner on the audit team as required for audits of financial statements filed with the SEC who reviews the audit team's work in critical audit areas (those areas with the highest potential audit risk). (Pg 85) |
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specialists |
The persons skilled in fields other than accounting and auditing--actuaries, appraisers, attorneys, engineers, and geologists--who are not members of the public accounting firm. (pg 86) |
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substantive audit plan |
Document that contains a list of audit procedures for gathering evidence related to the relevant assertions identified for the significant financial statement accounts and disclosures on an audit client. (pg 93) |
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termination letter |
The documentation provided to former clients dealing with the subject of futures services, in particular (1) access to audit documentation by new auditors, (2) reissuance of the auditor's report when required for SEC reporting or comparative financial reporting, and (3) fee arrangements for such future services. The termination letter also can contain a report of the auditor's understanding of the circumstances of termination (e.g., disagreements about accounting principles and audit procedures, fees, or other conflicts). (pg 82) |
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tracing |
An audit procedure in which the auditor selects a basic source document and follows its processing path forward to find its final recording in a summary journal or ledger. In practice, however, the term tracing may be used to describe following the path in either direction. (pg 96) |
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vouching |
An audit procedure in which an auditor selects an item of financial information, usually from a journal or ledger, and follows its path back through the processing steps to its origin (i.e., the source documentation that supports the item selected). (pg 95) |
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year-end audit work |
The procedures performed shortly before and after the balance sheet date. (pg 87) |
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accounting estimates |
The approximations of financial statement numbers often included in financial statements. (pg 139) |
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audit committee |
A subset of a company's board of directors composed of outside members (those not involved in the day-to-day operations of the company) who can provide a buffer between the audit firm and management. (pg 148) |
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audit risk |
The risk that the auditor will express an inappropriate audit opinion when the financial statements are materially misstated (e.g., giving an unmodified opinion on financial statements that are misleading because of material misstatements the auditors failed to discover). (pg 130) |
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audit strategy memorandum |
The scope, timing, and direction for auditing each relevant assertion based on the results of the audit risk model. (pg 151) |
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business risks |
The risks that result from significant conditions, events, circumstances, actions, or inactions that could adversely affect a company's ability to achieve its objectives and execute its strategies as well as from the setting inappropriate objectives and strategies or from changes or complexity in the company's operations or management. (pg 120) |
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control risk |
The probability that the client's internal control activities will fail to prevent or detect material misstatements provided that they enter or would have entered the accounting system. (pg 130) |
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defalcation |
Another name for employee fraud and embezzlement. (pg 128) |
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detection risk |
The probability that audit procedures will fail to produce evidence of material misstatements, provided any have entered or would have entered the accounting system and have not been prevented or detected and corrected by the client's control activities. (pg 131)
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direct-effect noncompliance |
The violations of laws or government regulations by the entity or its management or employees that produce direct and material effects on dollar amounts in financial statements. (pg 149) |
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embezzlement |
A type of fraud involving employees or nonemployees wronfully taking money or property entrusted to their care, custody, and control, often accompanied by false accounting entries and other forms of lying and cover-up. (pg 128) |
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employee fraud |
The use of fraudulent means to take money or other property from an employer. It consists of three phases: (1) the fraudulent act, (2) the conversion of the money or property to the fraudster's use, and (3) the cover-up. (pg 128) |
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enterprise risk management (ERM) |
A process effected by an entity's board of directors, management, and other personnel applied in strategy setting and across the enterprise that is designed to identify potential events that may affect the entity and to manage risks to be within its risk appetite to provide reasonable assurance regarding the achievement of entity objectives. (pg 120) |
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errors |
The unintentional misstatements or omissions of amounts or disclosures in financial statements. (pg 129) |
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extended procedures |
The audit procedures used in response to heightened fraud awareness as the result of the identification of significant risks. (pg 148) |
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fraud |
The act of knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act on it and, thus, suffer a loss or damage. (pg 124) |
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fraudulent financial reporting |
The intentional or reckless conduct, whether by act or omission, that results in materially misstated financial statements. (pg 126) |
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horizontal analysis |
The comparative analysis of year-to-year changes in balance sheet and income statement accounts. (pg 142) |
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indirect-effect noncompliance |
The violation of laws and regulations that does not directly affect specific financial statement accounts or disclosures (e.g., violations relating to insider securities trading, occupational health and safety, food and drug administration regulations, environmental protection, and equal employment opportunity). (pg 149) |
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larceny |
The simple theft of an employer's property that is not entrusted to an employee's care, custody, or control. (pg 128)
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management fraud |
The deliberate fraud committed by management that injures investors and creditors through materially misstated information. (pg 126) |
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relevant assertion |
A financial statement assertion that has a reasonable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially misstated. (pg 130) |
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related parties |
Those individuals or organizations that are closely tied to the audit client, possibly through family ties or investment relationships. (pg 138) |
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risk of material misstatement (RMM) |
The combined inherent and control risk; in other words, the likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control. (pg 130) |
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significant account or disclosure |
An account or disclosure that has a reasonable possibility of containing a material misstatement individually or when aggregated with others regardless of the effect of controls. (pg 130) |
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significant risk |
A risk of material misstatement that requires special audit consideration. Fraud risk is always considered significant risk. (pg 147) |
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vertical analysis |
The common-size analysis of financial statement amounts created by expressing amounts as proportions of a common base such as sales for the income-statement accounts or total assets for balance-sheet accounts. (pg 142) |
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white-collar crime |
Fraud perpetrated by people who work in offices and steal with a pencil or from a computer terminal. The contrast is with violent street crime. (pg 128) |
