Auditing Chapter 6

Front 1

Audit committee

Back 1

A mmittee composed of outside directors (members of the baord of directors who are neither officers nor employees) charged with reponsibility for apointing compensating, and overseeing the auditors.

Front 2

Audit plan

Back 2

A description of the nature, timing, and extent of the audit procedures to be performed. it is often documented with an audit program.

Front 3

Audit proram

Back 3

A detailed listing of the specific audit procedures to be performed in the course of an audit engagement. Audit porgrams porvide a basis for assigning and scheduling audit work and for deteming what work remains to be done. Audit programs are specially tailored to the risks and internal controls of each engagement.

Front 4

Business risks

Back 4

Risks that threaten management's ability to achieve the organization's objectives

Front 5

Control risk

Back 5

The risk that a material misstatement that coulc occur in an account will not be prevented or detected on a timely basis by internal control

Front 6

Engagement letter

Back 6

A formal letter sent by the auditors to the client at the beginning of an engagement summarizing the nature of the engement, any limitaions on the cope of audit work, work to be done byt he client's staff, and the basis for the audit fee. The purpose of engagement letters is to avoid misunderstandings; they are essential on nonaudit engagements as well as audits.

Front 7

Engagement risk

Back 7

The risk of loss or injury to the auditors' reputaiton by assocation witha client that oges bankrupt or one whose management Lacks integrity.

Front 8

Inherent risk

Back 8

The risk of material misstatement ofan assertion abou an account without considdering internal control

Front 9

Interim period

Back 9

The time interval from the beginning of audit work to the balance sheet date. Many audit procedures can be perfomed during the inteim period to facilitate early issuance of the audit report.

Front 10

managmenet assertions

Back 10

represtations of management that are communicated, explicitly or implicitl, buy the financial statmentes.

Front 11

Misappropraion of assets (defalcations)

Back 11

theft of client assets by an emplyee or officer of the organization.

Front 12

Risk asessment proceures

Back 12

Audit procedures perfomed to obtain an understanding of the client and its environment, including its internal control. Some of the information obtained by performing these procedures may be used by the auditor as audit evidence to support assessments of the risks of material misstatement. Risk assessment procedures include inquires of management and others within the entity, analytical procedures, and observation and other porcedures, including inquires of others outside the entity.

Front 13

Significant risks

Back 13

Identified risks that require special audit consideration.

Front 14

Substantive procedures

Back 14

Tests of account balaces and transaction designed to detect any material misstatements in the financial statements. The nature, timing, and extent of substantive procedures are determined by the auditors' assessmenet of risks and their consideration of the client's internal control.

Front 15

Tests of controls

Back 15

Tests directed toward the design or operation of a control to assess its effectiveness in preventing or detecting material misstatements of financial statement assertions.