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68 Cards in this Set
- Front
- Back
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Materiality
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Information that is likely to influence financial statement users' decisions (aka important information).
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Audit Risk
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The risk that the CPA will unknowingly fail to appropriately modify the audit opinion on F/S that are materially misstated.
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Assurance Services
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Independent professional services that improve the quality of information, or its context, for decision makers.
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Auditing
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A systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users.
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Attestation
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An engagement in which a practitioner is engaged to issue a report on subject matter or an assertion about the subject matter that is the responsibility of another party.
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Risk of Material Misstatement
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The combined probability that a material misstatement (error or fraud) will occur and not bee prevented or detected on a timely basis by the entity's internal controls.
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Inherent Risk
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The probability that, in the absence of internal controls, material errors or frauds could enter the accounting system used to develop financial statements
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Control Risk
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The probability that the client's internal control policies and procedures will fail too prevent or detect material misstatements, provided any enter or would have entered the accounting system in the first place.
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Audit Evidence
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All of the information used by auditors in arriving at the conclusions on which the audit opinion is based.
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Generally Accepted Auditing Standards (GAAS)
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Standards that identify necessary qualifications and characteristics of auditors and guide the conduct of the audit examination.
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Unqualified Audit Report
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A "clean" report that makes no mention of accounting or auditing deficiencies. The conclusion is that the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP.
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Financial Reporting
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Broad-based process of providing statements of financial position (balance sheets), results of operations (income statements, SoSE, and SoCI), changes in cash flows (SCF), and accompanying disclosure notes (footnotes) to outside decision makers who have no internal source of information.
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Business Risk
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The probability an entity will fail to meet its objectives and, ultimately, fail.
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Analytical Procedures
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Reasonableness tests used to gain an understanding of financial statements accounts and relationships. Evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data.
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Detection Risk
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The probability that audit procedures will fail to produce evidence of material misstatements, provided any have entered or would have entered the accounting system in the first place and have not been prevented or detected and corrected by the client's control activities.
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Errors
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Unintentional misstatements or omissions of amounts of disclosures in financial statements.
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Financial Statement Assertions
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Expressed or implied representations by management that are reflected in the financial statement components.
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Fraud
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Intentional misstatements that can be classified as fraudulent financial reporting and misappropriation of assets.
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Information Asymmetry
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The concept that the manager generally has more information about the true financial position and results of operations of the entity than the absentee owner does.
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Misstatement
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Classified as fraud (intentional), other illegal acts such as noncompliance with laws and regulations (intentional or unintentional), and errors (unintentional).
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Reasonable Assurance
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The concept that an audit done in accordance with auditing standards may fail to detect a material misstatement in a client's financial statements.
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Ethics
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Refers to a system or code of conduct based on moral duties and obligations that indicates how we should behave.
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Public Accounting Firms
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Range in size from a single proprietor to thousands of owners (or “partners”) and thousands of professional and administrative staff employees.
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Audit Committee
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Charged with overseeing the entity's system of internal control financial reporting, internal and external auditors, and the financial reporting process. Members typically must be independent of management.
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Board of Directors
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Persons elected by the stockholders of a corporation to oversee management and to direct the affairs of the corporation.
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Business Processes
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Designed to implement the corporation's strategies. Fit into five categories: 1) revenues, 2) purchasing, 3) human resource management, 4) inventory management, and 5) financing.
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Corporate Governance
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The oversight mechanisms in place to help ensure the proper stewardship over an entity's assets. Management and the board of directors play primary roles, and the independent auditor plays a key facilitating role.
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Illegal Acts
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Violations of laws or government regulations.
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Independence
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A state of objectivity in fact and in appearance, including the absence of any significant conflicts of interest.
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Integrated Audit
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An audit of both financial statements and internal control over financial reporting, provided by the external auditor. Required for public companies.
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Generally Accepted Accounting Principles (GAAP)
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Accounting principles that generally accepted for the preparation of financial statements in the US. The standards are currently issued by the FASB, with oversight and influence by the SEC.
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Management Advisory Services
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Consulting services that may provide advice and assistance concerning an entity's organization, personnel, finances, operations, systems, or other activities,
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Standards of the PCAOB
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Standards regarding the conduct of financial statement auditing for public companies. Currently consist primarily of standards and statements established by ASB adopted by the PCAOB in 2003 on an interim basis.
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Statements on Auditing Standards (SAS)
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Statements issued by the ASB, considered as interpretations of the 10 GAAS statements.
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Engagement Risk
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An auditor’s exposure to financial loss and damage to professional reputation.
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Analytical Procedures Risk
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The risk that substantive analytical procedures will fail to detect material misstatements.
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Closest Reasonable Estimate
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A range of acceptable amounts or a precisely determined point estimate for an estimate (i.e. uncollectible receivables), if that is a better estimate than any other amount.
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Expected Misstatement
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The amount that the auditor believes exists in the population.
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Professional Skepticism
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An attitude that includes a questioning mind and a critical assessment of audit evidence. The auditor should not assume that management is either honest or dishonest.
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Risk Assessment
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The identification, analysis, and management of risks relevant to the preparation of financial statements that are fairly presented in conformity with GAAP.
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Tests of Details Risk
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The risk that tests of details will not detect material misstatements that were not detected by internal controls or substantive analytical procedures.
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Tolerable Misstatement
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The amount of the planning materiality that is allocated to a financial statement account.
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Audit Procedures
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Specific acts performed by the auditor to gather evidence to determine if specific assertions are being met.
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Audit Program
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A set of audit procedures prepared to test assertions for a component of the financial statements.
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Sufficiency
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A measure of the quantity of audit evidence.
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Appropriateness
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A measure of the quality of audit evidence.
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Recalculation
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Determining the mathematical accuracy of documents or records.
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Relevance of Evidence
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Whether evidence relates to assertions being tested.
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Reperformance
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The auditor’s independent execution of procedures or controls that were originally performed as part of the internal control system.
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Reliability of Evidence
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The diagnosticity of evidence; that is, whether the type of evidence can be relied on to signal the true state of the assertion.
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Inspection of Tangible Assets
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Physical examination of the tangible assets.
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Inspection of Records and Documents
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Examination of internal or external records or documents that are in paper form, electronic form, or other media.
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Observation
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Process of watching a process or procedure being performed by others.
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Scanning
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Review of accounting data to identify significant or unusual items.
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Audit Documentation (working papers)
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The auditor’s principal record of the audit procedures performed, evidence obtained, and conclusions reached. They provide support for the audit report and aid in the conduct and supervision of the audit.
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Inquiry
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Seeking information of knowledgeable persons, both financial and nonfinancial, throughout the entity or outside the entity.
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Confirmation
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The process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.
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Assertions
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Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures.
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Audit Strategy
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The auditor's plan for the expected conduct, organization, and staffing of the audit.
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Dual-Purpose Tests
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Tests of transactions that both evaluate the effectiveness of controls and detect monetary errors.
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Substantive Tests of Transactions
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Test to detect errors or fraud in individual transactions.
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Accounting Periods
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The records of initial entries & supporting records, such as checks & records of electronic fund transfers; invoices; contracts; GL and subsidiary ledgers, journal entries, and other adjustments to the FS that are not reflected in JEs.
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Other Information
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Audit evidence that includes minutes of meetings; confirmations from 3rd parties; industry analysts' reports; comparable data about competitors; controls manuals; information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.
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Engagement Letter
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Includes the objectives, management’s responsibilities, auditor’s responsibilities, and limitations of the engagement. Formalizes the arrangement reached between the auditor and the client.
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Substantive Procedures
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Detect material misstatements in a transaction class, account balance, and disclosure component of the financial statements.
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Substantive Tests of Transactions
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Tests to detect errors or fraud in individual transactions.
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Tests of Controls
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Audit procedures performed to test the operating effectiveness of controls in preventing or detecting material misstatements at the relevant assertion level.
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Tests of Details of Account Balances and Disclosures
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Substantive tests that concentrate on the details of items contained in the account balance and disclosure.
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