Chapter 2 Terms
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Tony10101010 on September 23, 2010
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39 terms
Terms | Definitions |
|---|---|
 Adverse Report | A report stating that the financial statements are not presented in conformity with GAAP, opposite of an unqualified report |
| Appropriate audit evidence | Appropriateness relates to the quality (relevance and reliability) of audit evidence |
| Associate with financial statements | circumstances in which an accountant's name is used in connection with the financial statements or an accountant has prepared the statements, even if the accountant's name is not used in any written report |
| Attestation Standards | A general set of standards intended to guide attestation work in areas other than audits of financial statements |
| Audit Completion Date | The date on which auditors have gathered sufficient appropriate evidence on which to base the opinions on the financial statements and internal control over financial reporting; this is the date used on the auditors' report. |
| Audit Procedures | Specialized actions auditors take to obtain evidence in an engagement |
| Audit Plan | A list of the audit procedures auditors need to perfrom to gather sufficient appropriate evidence on which to base their opinion on the financial statements |
| Auditing standards | audit quality guides that remain the same through time and for all audits |
| control risk | the probability that a material misstatement (error or fraud) will not be prevented or detected on a timely basis by the entity's internal controls |
| Departure from GAAP | Instance in which the entity's financial statements (or elements within those financial statements) are materially misstated and do not present the entity's financial condition, results of operations, and cash flows in conformity with GAAP |
| detection risk | the risk that the audit teams procedures will fail to detect a material misstatement |
| disclaimer of opinion | Auditors explicitly state that they give no opinion and no assurance on the fair presentation of the financial statements in accordance with GAAP |
| due care | A level of performance that would be exercised by reasonable auditors in similar circumstances; auditors are expected to possess the skills and knowledge of others in their profession and are not expected to be infallible |
| Engagement quality control review | An internal evaluation of the significant judgments made by the audit team and conclusions reached in formulating its report |
| Evidence | The information used by auditors in arriving at the conclusion on which the audit opinion is based |
| External Evidence | Documentary evidence obtained directly from independent external sources |
| External-Internal Evidence | Documentary evidence that has originated outside the client's information processing system but that has been received and processed by the client |
| Financial Reporting Framework | A set of criteria used to determine the measurement, recognition, presentation, and disclosure of material items in the financial statements |
| GAAS | Standards that identify necessary qualifications and characteristics of auditors and guide the conduct of the audit examination |
| Independence in appearance | The extent to which others (particularly financial statement users) perceive auditors to be independent |
| Independence in fact | Auditors' mental attitude and impartiality with respect to the client |
| Inherent Risk | The probability that a material misstatement (error or fraud) will occur |
| Inspection | An evaluation of an accounting firm's audit engagement and system of quality control conducted by the PCAOB. Inspections are required for any firms proving auditing services to public entities. |
| Internal Control | An entity's capability to prevent or detect material accounting errors or frauds and provide for their correction on a timely basis. |
| Internal Evidence | Documents that are produced, circulated, and maintained within the client's information system |
| Management Representations | Written assertions provided by management to auditors on matters such as the fairness of the entity's financial statements, availability of all financial records and related date, internal control over financial reporting, and other specific representations about the financial statements and accounts. |
| Materiality | As it relates to financial reporting, the dollar amount that would influence the lending or investing decisions of financial statement users. |
| Peer Review | A study of a firm's quality control policies and procedures, followed by a report on the quality of the firm's audit practice in accordance with its system of quality control. These are conducted through the AICPA and are generally performed for firms that do not audit public entities |
| Professional Judgment | The application of relevant training, knowledge, and experience in making informed decisions about appropriate courses of action during the audit engagement |
| Professional Skepticism | A state of mind that is characterized by appropriate questioning and a critical assessment of audit evidence |
| Qualified Report | An auditors' report issued when the financial statements contain departures from GAAP or the audit examination was not conducted in accordance with GAAS |
| Reasonable Assurance | Concept that a GAAS audit may not detect all material misstatements and auditors are not "insurers" or "guarantors" regarding the fairness of the company's financial statements |
| risk of material misstatement | The combined probability that a material misstatement (error or fraud) will occur and not be prevented or detected on a timely basis by the entity's internal controls |
| Scope Limitation | Situation in which auditors are unable to obtain sufficient evidence regarding the fairness of the entity's financial statements |
| Substantive Procedures | Procedures used by auditors to obtain assurance as to the fairness of the entity's financial statements |
| Sufficient audit evidence | relates to the quantity of audit evidence, the number of transactions or components evaluated |
| system of quality control | policies and procedures implemented by firms to provide the firm with reasonable assurance that the firm and its personnel: 1. Comply with professional standards and applicable regulatory and legal requirements 2. Issue reports that are appropriate in the circumstances |
| unqualified report | A clean report that makes no mention of accounting or auditing deficiencies. |
| Verbal Evidence | Responses to audit inquiries provided by the client's officers, directors, owners, and employees |
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