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20 Cards in this Set

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BUSINESS RISK
Business risk, in relation to auditing, is the risk of an entity failing to achieve the expectations of the managers and owners with respect to the entity's financial performance.
INHERENT RISK
"The susceptibility of a balance or transaction class to error that could be material, when aggregated with other errors, assuming no related internal controls.
ACCEPTABLE AUDIT RISK
A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified audit opinion has been issued.
ALLOCATION OF THE PRELIMINARY JUDGMENT ABOUT MATERIALITY
The process of assigning to each balance sheet account the misstatement amount to be considered material for that account based on the auditor's preliminary judgment.
AUDIT ASSURANCE
A complement to acceptable audit risk; an acceptable audit risk of 2% is the same as audit assurance of 98%; also called overall assurance and level of assurance.
AUDIT RISK MODEL
A formal model reflecting the relationships between acceptable audit risk (AAR), inherent risk (IR), control risk (CR), and planned detection risk (PDR); PDR = AAR / (IR x CR)
CONTROL RISK
A measure of the auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the client's internal controls.
DIRECT PROJECTION ESTIMATE OF MISSTATEMENT
ESTIMATE OF LIKELY MISSTATEMENT IN A POPULATION BASED ON A SAMPLE, EXCLUDING SAMPLING RISK, and calculated as net misstatements in the sample, divided by the total sampled, multiplied by the total recorded population value.
ENGAGEMENT RISK
The risk that the auditor or audit firm will suffer harm because of a client relationship, even though the audit report rendered for the client was correct.
INHERENT RISK
A measure of the auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control.
KNOWN MISSTATEMENTS
Specific misstatements in a class of transactions or account balance identified during the audit.
LIKELY MISSTATEMENTS
Misstatements that arise from either differences between management's and the auditor's judgment about estimates of account balances or from projections of misstatements based on the auditor's test of a sample from a population.
MATERIALITY
The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
PLANNED DETECTION RISK
A measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding a tolerable amount, should suck a misstatements exist; PDR = AAR / (IR x IC)
PRELIMINARY JUDGMENT ABOUT MATERIALITY
The maximum amount by which the auditor believes that the statements could be misstated and still not affect the decisions of reasonable users; used in audit planning.
REVISED JUDGMENT ABOUT MATERIALITY
A change in the auditor's preliminary judgment made when the auditor determines that the preliminary judgment was too large or too small.
RISK
The acceptance by auditors that there is some level of uncertainty in performing the audit function.
RISK OF MATERIAL MISSTATEMENT
The combination of inherent risk and control risk (IR x CR).
SAMPLING ERROR
Results because the auditor has sampled only a portion of the population.
TOLERABLE MISSTATEMENT
The materiality allocated to any given account balance; used in audit planning.