Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
53 Cards in this Set
- Front
- Back
|
Adverse Opinion on Internal Control over Financial Reporting |
The opinion issued when the company has a material weakness and not maintained an effective internal control over financial reporting. Pg 205 |
|
|
Audit Committee |
A subcommittee of the board of directors that is generally composed of three to six "outside" members of the organization's board of directors. Pg 180 |
|
|
Auditors' Report on Internal Control over Financial Reporting |
A report required by the Sarbanes-Oxley Act that provides an opinion on the effectiveness of the entity's internal control over financial reporting. Pg 202 |
|
|
Business Risks |
Those factors, events, and conditions that could prevent the organization from achieving its business objectives. Pg 180 |
|
|
Control Activities |
The specific actions taken by a client's management and employees to help ensure that management directives are carried out. Pg 181 |
|
|
Control Risk |
The probability that an entity's controls will fail to prevent or detect errors and frauds that would otherwise have entered the system. Pg 175 |
|
|
Design Effectiveness |
A condition expressing whether controls would be expected to prevent or detect errors or fraud that could result in a material misstatement in the financial statements. Pg 190 |
|
|
Detective Controls |
The activities that detect misstatements after they occur. Pg 182 |
|
|
Disclaimer of Opinion on Internal Control over Financial Reporting |
The report issued when auditors cannot provide assurance on the effectiveness of internal control over financial reporting; issued when a significant scope limitation exists. Pg 205 |
|
|
Dual-Purpose Test |
An audit procedure that can be used as both a test of controls and a substantive test. Pg 198 |
|
|
Entity-Level Controls |
The controls that are pervasive to the financial statements taken as a whole. Pg 189 |
|
|
Flowchart |
The audit documentation that provides a visual display of the accounting system and control activities in an entity's internal control system. Pg 192 |
|
|
Information System |
An entity's system, usually built on some type of technological platform that has been designed to produce the information necessary for the entity to operate and control its business operations. Pg 185 |
|
|
Integrated Audit Process |
The term used to describe an audit process that is designed to provide an opinion on both the financial statements and internal control system of an entity. Pg 175 |
|
|
Internal Control |
A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the reliability of financial reporting, the effectiveness and efficiency of operations, and compliance with applicable laws and regulations. Pg 173 |
|
|
Internal Control Deficiency |
A condition that exists when the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion. Pg 200 |
|
|
Internal Control Questionnaire (ICQ) |
The audit documentation that uses a checklist of internal control-related questions to gain and document an understanding of the client's internal control. Pg 190 |
|
|
Management's Annual Report on Internal Control over Financial Reporting |
A report required by the Sarbanes-Oxley Act that states that management is responsible for establishing and maintaining adequate internal control over financial reporting, identifies the framework management uses to evaluate the effectiveness of the entity's internal control, and provides management's assessment of the effectiveness of the entity's internal control. Pg 201 |
|
|
Material Weakness |
A deficiency or combination of deficiencies that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis. Pg 200 |
|
|
Narrative Description |
The audit documentation that describes the environmental elements, the accounting system, and the control activities in an entity's internal control. Pg 192 |
|
|
Operating Effectiveness |
Description of a condition expressing whether a control is operating as designed and whether the person performing the control possesses the necessary authority and qualifications to perform the control effectively. Pg 190 |
|
|
Preventive Controls |
The activities that prevent misstatements before they occur. Pg 182 |
|
|
Reasonable Assurance |
The concept that recognizes that the costs of control activities should not exceed the benefits that are expected from the control activities. Pg 174 |
|
|
Significant Deficiency |
A deficiency or a combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. Pg 200 |
|
|
Substantive Procedures |
The detailed audit and analytical procedures designed to detect material misstatements in account balances and footnote disclosures. Pg 197 |
|
|
Transaction-Level Controls |
The controls that relate to specific classes of transactions, account balances, and disclosures. Pg 190 |
|
|
Unqualified Opinion on Internal Control over Financial Reporting |
The report issued when no material weaknesses in internal control over financial reporting are identified and no scope limitations on the audit of internal control exist. Pg 202 |
|
|
Walkthrough |
The tracing of one or more transactions through the audit trail from initiation of the transaction to its inclusion in the financial statements. Pg 190 |
|
|
Check Kiting |
The practice of building up balances in one or more bank accounts based on uncollected (floating) checks drawn against similar accounts in other banks. Pg 245 |
|
|
Cutoff Bank Statement |
A client bank statement (usually sent directly to the auditor) that includes all paid checks and deposits slips through a certain date, usually the middle of the month. Pg 244 |
|
|
Direct-Effect Illegal Acts |
The violations of laws or government regulations by a company or its management or employees that produce direct and material effects on dollar amounts in financial statements. Pg 223 |
|
|
Embezzlement |
A type of fraud involving employees or nonemployees wrongfully 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 223 |
|
|
Employee Fraud (misappropriation of assets) |
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 223 |
|
|
Errors |
The unintentional misstatements or omissions of amounts or disclosures in the financial statements. Pg 223 |
|
|
Fidelity Bond |
An insurance policy that covers most kinds of cash embezzlement losses. Pg 234 |
|
|
Fraud |
The act of knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act upon it and, thus, suffer a loss or damage. Pg 223 |
|
|
Lapping |
The theft of a payment and the application of subsequent payments to cover the theft. Pg 234 |
|
|
Lockbox |
An arrangement in which a fiduciary (e.g. a bank) receives the payments, lists the receipts, deposits the money, and sends the remittance advices (stubs showing the amount received from each customer) to the company. Pg 232 |
|
|
Management Fraud |
The deliberate fraud committed by management that injures investors and creditors through materially misleading information. Pg 223 |
|
|
Motive |
In the fraud context, some type of pressure experienced by a person that is believed to be unshareable with friends and confidants. Pg 226 |
|
|
Proof of Cash |
A reconciliation in which the bank balance, the bank report of cash deposited, and the bank report of cash paid are all reconciled to the company's general ledger and cash receipts and disbursements journals. Pg 246 |
|
|
Schedule of Interbank Transfers |
A document prepared to use in analyzing whether transfers of cash from one bank to another were recorded properly (correct amount and correct date). Pg 245 |
|
|
Aged Trial Balance |
A schedule that lists each individual receivable and indicates whether it is current or past due and if past due, for how long. The total should equal the accounts receivable general ledger balance. Pg 280 |
|
|
Bill and Hold |
A fraudulent financial reporting activity by which a company recognizes a sale even though it does not ship the merchandise to the customer but holds it in its own warehouse. Pg 299 |
|
|
Bill of Lading |
A contract between a seller and a common carrier to verify shipment of goods. Pg 278 |
|
|
Dual-Purpose Procedure |
An audit procedure that simultaneously serves the substantive purpose (obtain direct evidence about the company's performance of its own control activities). Pg 294 |
|
|
Factor |
The action to sell accounts receivable to another party (the factor) at a discount from face value. Pg. 292 |
|
|
Negative Confirmation |
A form sent to a customer by auditors requesting that the customer respond only if the balance shown on it is incorrect. Pg 287 |
|
|
Packing Slip |
A document included with a shipment that shows the description and quantity of the goods being shipped. Pg 278 |
|
|
Positive Confirmation |
A letter sent to a customer by auditors requesting that the customer respond whether the balance shown is correct or not. Pg 287 |
|
|
Revenue Recognition |
The recording of revenues in the general ledger, often done fraudulently by schemes such as bill and hold. Pg 273 |
|
|
Sales Cutoff Tests |
The tests that ensure that sales are recorded in the proper period--generally, when they are shipped--and that the cost of sales is recorded and removed from inventory. Pg 292 |
|
|
Sales Invoice |
A bill sent to customers for payment showing the amount due and payment terms. Pg 278 |
