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20 Cards in this Set
- Front
- Back
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BUSINESS RISK
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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.
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INHERENT RISK
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"The susceptibility of a balance or transaction class to error that could be material, when aggregated with other errors, assuming no related internal controls.
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ACCEPTABLE AUDIT RISK
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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.
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ALLOCATION OF THE PRELIMINARY JUDGMENT ABOUT MATERIALITY
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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.
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AUDIT ASSURANCE
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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.
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AUDIT RISK MODEL
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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)
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CONTROL RISK
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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.
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DIRECT PROJECTION ESTIMATE OF MISSTATEMENT
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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.
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ENGAGEMENT RISK
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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.
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INHERENT RISK
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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.
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KNOWN MISSTATEMENTS
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Specific misstatements in a class of transactions or account balance identified during the audit.
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LIKELY MISSTATEMENTS
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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.
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MATERIALITY
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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.
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PLANNED DETECTION RISK
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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)
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PRELIMINARY JUDGMENT ABOUT MATERIALITY
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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.
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REVISED JUDGMENT ABOUT MATERIALITY
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A change in the auditor's preliminary judgment made when the auditor determines that the preliminary judgment was too large or too small.
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RISK
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The acceptance by auditors that there is some level of uncertainty in performing the audit function.
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RISK OF MATERIAL MISSTATEMENT
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The combination of inherent risk and control risk (IR x CR).
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SAMPLING ERROR
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Results because the auditor has sampled only a portion of the population.
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TOLERABLE MISSTATEMENT
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The materiality allocated to any given account balance; used in audit planning.
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