Auditing Chapter 3-Management Fraud And Audit Risk

Front 1

Accounting estimates

Back 1

approximations of financial statement numbers often included in financial statements

Front 2

Analytical Procedures

Back 2

reasonableness tests used to gain an understanding of financial statement accounts and relationships

Front 3

Audit Committees

Back 3

a subset of a company's board of directors composed of outside members (those not involved in the day-to-day operations of the company) who can provide a buffer between the audit firm and management

Front 4

Audit Program

Back 4

a list of the audit procedures the auditors need to perform to gather sufficient appropriate evidence on which to base their opinion on the financial statements

Front 5

Audit Risk

Back 5

the probability that an audit firm will give an inappropriate opinion on financial statements

Front 6

Control Risk

Back 6

the probability that the client's internal control activities will FAIL to prevent or detect material misstatements, provided any enter or would have entered the accounting system in the first place

Front 7

Cycle

Back 7

a set of balance sheet and income statement accounts that are related by their common usage in a business process

Front 8

Defalcation

Back 8

another name for an employee fraud or embezzlement

Front 9

Detection Risk

Back 9

the probability that the 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

Front 10

Direct-effect illegal acts

Back 10

violations of laws or government regulations by the entity or its management or employees that produce direct ant material effects on dollar amounts in financial statements

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Embezzlement

Back 11

a type of fraud involving employees or nonemployees wrongfully taking mone or property entrusted to their care, custody, and control, often accompanied by false accounting entries and other forms of lying and cover-up

Front 12

Employee Fraud

Back 12

the use of fraudulent means to take money or other property from an employer. It consists of three phases: (1) the fraudulent act, (2) the conversion to money or property to the fraudster's use, and (3) the cover-up

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Errors

Back 13

unintentional misstatements or omissions of amounts or disclosures in financial statements

Front 14

Extended Procedures

Back 14

audit procedures that are used in response to heightened fraud awareness as the result of identified fraud risks. Could include counting petty cash twice on the same day, contract confirmations with customers, and "surprise" inventory observations

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Fraud

Back 15

knowingly making material misstatements of fact with the intent of inducing someone to believe the falsehood and act on it and, thus, suffer a loss or damnage

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Indirect-effect illegal act

Back 16

violations of laws and regulations that are far removed from financial statement effects (EX-violations relating to insider securities trading)

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Information Risk

Back 17

the probability that the information circulated by an entity will be false or misleading

Front 18

Inherent Risk

Back 18

the probability that, in the absence of internal controls, material errors or frauds could enter the accounting system used to develop financial statements

Front 19

Internal Control Audit Program

Back 19

the specification of procedures for obtaining an understanding of the client's business and internal control and for assessing the control risk related to the financial account balances

Front 20

Larceny

Back 20

simple theft of an employer's property that is not entrusted to an employee's care, custody, or control

Front 21

Management Fraud

Back 21

deliberate fraud committed by management that injures investors and creditors through materially misleading information

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Materiality

Back 22

an amount or event that makes a difference to financial statement users

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Risk of Material Misstatement

Back 23

combined inherent and control risk; in other words, the likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal controls

Front 24

Substantive Audit Program

Back 24

the specification of sibstantive procedures for gathering direct evidence on management's assertions

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Tracing

Back 25

an audit procedure in which the auditor selects a basic source document and follows its processing path FORWARD to find its final recording in a summary journal or ledger, or BACKWARD to find its origin.

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Vouching

Back 26

an audit procedure in which an auditor selects an item of financial information, usually from a journal or ledger, and follows its bath back through the processing steps to its origin (the source documents)

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White Collar Crime

Back 27

fraud perpetrated by people who work in offices and steal with a pencil or a computer terminal. The contrast in blue-collar crime (violent street crime)