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Chapter 3

analytical procedures

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

audit documentation

The written basis for the auditor's conclusions

audit plan

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

audit trail

The chain of evidence provided through coding, cross-references, and documentation connecting account balances and other summary results with the original transaction source documents

continuing audit files

audit documentation containing information of continuing audit significance for current and past audits of the same client

engagement letter

letter from the public accounting firm to the management of an engagement client setting forth the terms of the engagement

Form 8-K

The "special events report" filed with the SEC whenever certain significant corporate events occur such as changes in control, legal proceedings, and changes of auditor.

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

interim audit work

procedures performed several weeks or months before the balance sheet date

lead schedule

a summary of the accounts in or components of an account group


An amount or event that is likely to influence financial statement users' decisions

permanent files

audit documentation containing info of continuing audit significance for curent and past audits of the same client

planning memorandum

document summarizing the preliminary analytical procedures and the materiality assessment with specific directions about the effect on the audit

predecessor auditor

the public accounting firm that has been termined or has voluntarially withdrawn from an audit engagement

quality assurance partner

the second audit partner on the audit team as required for audits of financial statements filed with the SEC and who reviews the audit team's work in critical audit areas


The persons skilled in fields other than accounting or auditing - actuaries, appraisers, attorneys, engineers, and geologists - who are not members of the public accounting firm

substantive audit plan

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

termination letter

documentation provided to former clients dealing with the subject of future services, in particular: 1) access to audit documentation by new auditors 2) re-issuance of the auditors' report when required for SEC reporting or comparative financial reporting and 3) fee arrangements for such future services. Also can contain report of the auditor's understanding of the circumstances of termination


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.


An audit procedure in which an auditor selects an item or financial information, usually from a journal or ledger, and follows its path back through the processing steps to its origin.

year-end audit work

The procedures performed shortly before and after the balance-sheet date

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