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Terms in this set (41)
Qualifications of the auditor and quality of his work
Competence, Independence, Due Professional Care
adequate technical training,
reliable and relevant
Field Work Standards
basis to judge the fairness of financial statements
Planning and supervision, internal control structure, evidence
must be sufficient and competent, and obtained through inspection, observations, inquiries, confirmations
provide guidance and structure for communicating the result of audit
financial statements, GAAP, Informative Disclosures, Expression of an opinion
Planning and Supervision, Review of Internal Control Structure, Performance of Substantive Tests, Audit report
Planning and Supervision
Understanding of; (nature of business and industry, accounting procedures, internal control system) Methods used to process info, assess audit risk, make estimates of materiality levels, perform analytic procedures to focus, consider special issues
Internal Control System
control environment, risk assessment, control activities, information and communication, and monitoring
the risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially mistated
the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced
Intentional misstatement of financial statements by management (management fraud), or theft of assets by employees (employee fraud). Fraud also is referred to as irregularities.
A representation or declaration made by the responsible party, typically management of the entity.
The risk that the information used by investors, creditors, and others to assess business risk is not accurate.
An opinion issued by the auditors that the financial statements they have audited do not present fairly the financial position, results of operation, or cash flows in conformity with accounting principles generally accepted in the United States of America.
The concept of using the same accounting principles from year to year so that the successive financial statements issued by a business entity will be comparable.
A most important auditing standard, which prohibits CPAs from expressing an opinion on financial statements of an enterprise unless they are independent with respect to such enterprise; independence is impaired by a direct financial interest, service as an officer or trustee, certain loans to or from the enterprise, and various other relationships.
A process, effected by the entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (1) reliability of financial reporting; (2) effectiveness and efficiency of operations; and (3) compliance with applicable laws and regulations.
The appropriate form of audit report when there is a limitation in the scope of the audit or when the financial statements depart from GAAP significantly enough to require mention in the auditors' report, but not so significantly as to necessitate disclaiming an opinion or expressing an adverse opinion.
The form of audit report issued when the examination was adequate in scope and the auditors believe that the financial statements present fairly the financial position, operating results, and cash flows in conformity with generally accepted accounting principles.
Direct Financial Interest
A personal investment under the direct control of the investor. The Code of Professional Conduct prohibits CPAs from having any direct financial interests in their attest clients. Investments made by a CPA's spouse or dependents also are regarded as direct financial interests of the CPA.
A committee of a corporation's board of directors that engages, compensates, and oversees the work of the independent auditors, monitors activities of the internal auditing staff, and intervenes in any disputes between management and the independent auditors. Members of the audit committee must be independent directors, that is, members of the board of directors who do not also serve as corporate officers, or have other relationships that might impair independence.
Indirect Financial Interest
An investment in which the specific investment decisions are not under the direct control of the investor. An example is an investment in a professionally managed mutual fund. The Code of Professional Conduct allows CPAs to have indirect financial interests in attest clients, as long as the investment is not material in relation to the CPA's net worth.
The unit of storage for a specific audit engagement. The audit documentation for each year's audit of a company is included in its audit file.
The risk that a material misstatement that could occur in an account will not be prevented or detected on a timely basis by internal control.
Cross Sectional Analysis
A technique that involves comparing the client's ratios for the current year with those of similar firms in the same industry.
The risk that the auditors' procedures will lead them to conclude that a financial statement assertion is not materially misstated when in fact such misstatement does exist.
A technique that involves comparing financial statement amounts and ratios for a particular company from year to year.
The risk of material misstatement of a financial statement assertion, assuming there were no related controls.
A file of working papers containing relatively unchanging data, such as copies of articles of incorporation and bylaws; copies of minutes of directors', stockholders', and committee meetings; and analyses of such ledger accounts as land and retained earnings.
Tests of account balances and transactions designed to detect any material misstatements in the financial statements. Substantive tests directly affect detection risk
A form of analysis that presents financial statement amounts for a period as a percentage of some financial statement base. This analysis involves the preparation of common-size financial statements.
Papers that document the evidence gathered by auditors to show the work they have done, the methods and procedures they have followed, and the conclusions they have developed in an audit of financial statements or other type of engagement
Tests that involve comparisons of financial data for the current year to that of prior years, budgets, nonfinancial data, or industry averages. From a planning standpoint, analytical procedures help the auditors obtain an understanding of the client's business, identify financial statement amounts that appear to be affected by errors or fraud, or identify other potential problems.
Dual Purpose Procedures
An audit procedure that serves as a test of controls and as a substantive test. For example, a test of controls over equipment acquisitions may address authorization (providing evidence on control effectiveness) and whether the transaction tested has been properly recorded in the year's acquisitions (providing substantive evidence on the dollar amounts). As another example, a substantive test may reveal a misstatement and be extended to determine the nature of the control that did not operate effectively, thereby providing evidence on operating effectiveness.
The risk of loss or injury to the auditors' reputation by association with a client that goes bankrupt or one whose management lacks integrity.
The sequence of procedures applied by the client in processing a particular type of recurring transaction. The term cycle reflects the idea that the same sequence of procedures is applied to each similar transaction. The auditors' consideration of internal control often is organized around the client's major transaction cycles.
A control that reduces the risk that an existing or potential control weakness will result in a failure to meet a control objective (e.g., avoiding misstatements). Compensating controls are ordinarily controls performed to detect, rather than prevent, the original misstatement from occurring.
Controls that function together to achieve the same control objective.
Assigned duties that place an individual in a position to both perpetrate and conceal errors or fraud in the normal course of job performance.
Controls that deter control problems before they occur.
Duplicate controls that achieve a control objective.
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