Auditing Ch.10 Vocab

Front 1

Assessment of control risk

Back 1

a measure of the auditor's expectation that internal controls will neither prevent or detect material misstatements from occuring nor detect and correct them if they have occurred; control risk is assessed for each transaction-related audit objective in a cycle or class of transactions

Front 2

Chart of accounts

Back 2

a listing of all the entity's accounts, which classifies transactions into individual balance sheet and income statement accounts

Front 3

Compensating Control

Back 3

a control elsewhere in the system that offsets the absence of a key control

Front 4

Collusion

Back 4

A cooperative effort among employees to steal assets or misstate records

Front 5

Control activities

Back 5

policies and procedures, in addition to those included in the other four components of internal control, that help ensure that necessary actions are taken to address the risks in the achievement of the entity's objectives

Front 6

Control deficiency

Back 6

a deficiency in the design or operation of controls that does not permit company personnel to prevent or detect misstatements on a timely basis

Front 7

Control environment

Back 7

the actions,policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about internal control and its importance to the entity

Front 8

Control risk matrix

Back 8

a methodology used to help the auditor assess control risk by matching key internal controls and internal control deficiencies with transaction-related audit objectives

Front 9

Entity-level controls

Back 9

controls that have a pervasive effect on the entity's system of internal control; also referred to as company-level controls

Front 10

Flowchart

Back 10

a diagrammatic representation of the client's documents and records and the sequence in which they are processed

Front 11

General Authorization

Back 11

companywide policies for the approval of all transactions within the stated limits

Front 12

Independent checks

Back 12

internal control activities designed for the continuous internal verification of other controls

Front 13

Information and communication

Back 13

the set of manual and/or computerized procedures that initiates, records, processes, and reports an entity's transactions and maintains accountability for the related assets

Front 14

Internal control

Back 14

a process designed to provide reasonable assurance regarding the achievement of managements objectives in the following categories: (1) reliability of financial reporting (2) effectiveness and efficency of operations, (3) compliance with apllicable laws and regulations

Front 15

Internal control questionnaire

Back 15

a series of questions about the controls in each audit area used as a means of indicating to the auditor aspects of internal control that may be inadequate

Front 16

Key controls

Back 16

controls that are expected to have the greatest effect on meeting the audit objectives

Front 17

Management letter

Back 17

an optional letter written by the auditor to a client's management containing the auditors recommendations for improving any aspect of the client's business

Front 18

Material weakness

Back 18

a significant deficiency in internal control that, by itself, or in combination with other significant deficiencies, results in a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected

Front 19

Monitoring

Back 19

managements ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and are modified when needed

Front 20

Narrative

Back 20

a written description of a client's internal control, including the origin, processing, and disposition of documents and records, and the relevant control procedures

Front 21

Procedures to obtain an understanding

Back 21

procedures used by the auditor to gather evidence about the design and implementation of specific controls

Front 22

Risk assessment

Back 22

managements identification and analysis of risks relevant to the preparation of financial statements in accordance with GAAP

Front 23

Seperation of duties

Back 23

seperation of the following activities in an organization: (1) custody of assets from accounting (2) authorization from custody of assets, (3) operational responsibility from record keeping (4) IT duties from outside users of IT

Front 24

Significant Deficiency

Back 24

one or more control deficiencies exist that is less severe than a material weakness, but important enough to merit attention by those responsible for oversight of the company's financial reporting

Front 25

Significant risks

Back 25

risks the auditor believes require special audit consideration; the auditor is required to test the operating effectiveness of controls that mitigate these risks in the current year audit if control risk is to be assessed below the maximum

Front 26

Specific Authorization

Back 26

case-by-case approval of transactions not covered by companywide policies

Front 27

Tests of controls

Back 27

audit procedures to test the operating effectiveness of controls in support of reduced assessed control risk

Front 28

Those charged with governance

Back 28

The person (s) with responsibility for overseeing the strategic direction of the entity and its obligations related to the accountability of the entity, including overseeing the financial reporting and disclosure process ( usually audit committe)

Front 29

Walkthrough

Back 29

The tracing of selected transactions through the accounting system to determine that controls are in place