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A530 - Ch 1 Terms
Significant Terms - Advanced Auditing Chapters 1 to 6
| Term | Definition |
|---|---|
| Adverse Opinion | Should be expressed when the auditor believes that the financial statements taken as a whole are NOT PRESENTED FAIRLY in conformity with GAAP or when the auditor believes that the client's internal controls are not effective |
| American Institute of Certified Public Accountants (AICPA) | The primary professional organization for CPAs, it has a number of committees to develop professional standards for the conduct of nonpublic company audits and other services performed by its members and to self-regulate the profession. |
| Audit Quality | Performing audit in accord. with GAAS to provide reasonable assurance that audited fin stmts and related disclosures are presented in accordance w/ GAAP & providing assurance that fin stmts are not materially misstated whether due to errors or fraud |
| Center for Audit Quality (CAQ) | An organization affiliated with the AICPA that is dedicated to enhancing investor confidence and trust in the financial markets |
| Committee of Sponsoring Organizations of the Treadway Commission (COSO) | An organization that provides thought leadership and guidance on enterprise risk management, internal control and fraud deterrence. |
| Concurring Partner Review | Occurs when an audit partner not otherwise involved in the audit independently reviews each audit to make sure that documented evidence supports the audit opinion. Otherwise known as an engagement quality review. |
| Due Professional Care | A standards of care expected to be demonstrated by a competent professional in his or her field of expertise, set by the GAAS but supplemented in specific implementation instances by the standard of care expected by a a reasonably prudent auditor. |
| Engagement Letter | States the scope of the work to be done on the audit so that there can be no doubt in the mind of the client, external auditor, or the court system as to the expectations agreed to by the external auditor and the client. |
| Engagement Quality Review | Occurs when an audit partner not otherwise involved in the audit independently reviews each audit to make sure that documented evidence supports the audit opinion. Otherwise known as a concurring partner review. |
| Financial Statement Audit | A systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. |
| Generally accepted accounting principles (GAAP) | Refers to principles for financial reporting. Throughout the text we recognize that the criteria may be developed by FASB or IASB. GAAP has general acceptance and provides criteria by which to assess the fairness of a financial statement presentation. |
| Generally accepted auditing standards (GAAS) | Refers to professional external auditing stds that are followed by auditors when conducting a fin stmt audit. GAAS are set by AICPA, IAASB, and the PCAOB. |
| Integrated audit | Type of audit provided when an external auditor is engaged to perform an audit of the effectiveness of internal control over financial reporting ("the audit of internal control over financial reporting" that is integrated with an audit of the fin stmts |
| Internal control | A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance |
| International Accounting Standards Board(IASB) | This organization issues IFRS (International Financial Reporting Standards) and is working to be the one provider of accounting standards around the world. |
| International Auditing and Assurance Standards Board (IAASB) | A part of the Int'l Federation of accountants that is responsible for issuing auditing and assurance standards. Its gal is to harmonize auditing standards on a global basis. |
| International Standards for Auditing (ISAs) | Standards issued by the IAASB for all auditors who are following international auditing standards |
| Interoffice review | A review of one office of the audit firm by professionals from another office to assure that the policies and procedures established by the firm are being followed. |
| Professional skepticism. | An attitude that includes a questioning mind and critical assessment of audit evidence. |
| Public Company Accounting Oversight Board (PCAOB) | A quasi-public board, appointed by the SEC, to provide oversight of the firms that audit public companies registered with the SEC. It has the authority to set auditing standards for the audits of public companies. |
| Sarbanes-Oxley Act of 2002 | Board legislation mandating new standard setting for audits of public companies and new standards for corporate governance. |
| Securities and Exchange Commission (SEC) | The governmental body with the oversight responsibility to ensure the proper and efficient operation of capital markets in the United States. |
| Unqualified audit report. | The standard three-paragraph audit report that describes the auditor's work and communicates the auditor's opinion that the financial statements are fairly presented in accordance with GAAP. |
| Asset misappropriation | A fraud that involves the theft or misuse of an organization's assets. Common examples include skimming cash, stealing inventory, and payroll fraud. |
| Audit committee | A subcommittee of the BoD responsible for monitoring audit activities ad serving as a surrogate for the interests of shareholders; it should be composed of outside members of the board (members who are independent of the organization) |
| Board of Directors (BoD) | The major representative of stockholders to help ensure that the organization is run according to the organization's charter and that there is proper accountability. |
| Corporate governance | A process by which owners & creditors of an org exert control & require accountability for resources entrusted to the org. The owners (stockholders) elect a BoD to provide oversight of the org's activities & accountability to stakeholders |
| Fraudulent financial reporting | The intentional manipulation of reported financial results to misstate the economic condition of the organization. |
| Fraud | An intentional act involving the use of deception that results in a material misstatement of the financial statements. |
| Fraud triangle | A model that includes incentives, opportunity, and rationalization to commit fraud; if one of these elements is absent then fraud is much less likely. |
| Ponzi scheme | This type of fraud occurs when the deposits of current investors are used to pay returns on the deposits of previous investors, no real investment is happening. |
| Red flags | Risk factors suggesting a heightened risk of fraud. |
| Stakeholders | Anyone who is influenced, either directly or indirectly, by the actions of a company; stakeholders extend beyond the shareholders of a company |
| Application Controls | Control activities implemented to mitigate transaction processing risk that typically affect only certain process, transactions, accounts, and assertions. These are controls that do not have entity-wide effect. (Same as transaction controls) |
| Control activities | The component of internal control that includes control actions that have been established by policies and procedures. They help ensure that management's directives regarding internal control are carried out. |
| Control deficiency | A shortcoming in internal controls such that the objective of reliable financial reporting may not be achieved |
| Control environment | Component of internal control. Incl: set of stds, processes, & structures that provides basis for carrying out internal control across the org. It includes "tone at the top" regarding the importance of internal control & the expected standards of conduct |
| COSO's updated Internal Control Integrated Framework | A comprehensive framework of internal control used to assess the effectiveness of internal control over financial reporting, as well as controls over operational and compliance objectives |
| Detective controls | Controls designed to discover errors that occur during processing |
| Edit tests | Control tests built into an application to examine input data for obvious errors (also referred to as edit tests) |
| Entity-wide controls | Controls that operate across an enity and affect multiple processes, transactions, accounts, and assertions |
| General computer controls | Pervasive control activities that affect multiple types of information technology systems and are necessary for automated application controls to work properly (also referred to as information technology general controls) |
| Information and communication | The component of internal control that refers to the process of identifying, capturing, and exchanging information in a timely fashion to enable accomplishment of the organization's objectives |
| Information technology general controls | Pervasive control activities that affect multiple types of information technology systems and are necessary for automated application controls to work properly |
| Input controls | Controls designed to ensure that authorized transactions are correct and complete, and that only authorized transactions can be input. |
| Input validation tests | Control tests built into an application to examine input data for obvious errors (also referred to as edit tests) |
| Integrated audit | An audit in which the same auditor provides an opinion on both the Financial statements and the effectiveness of internal control over financial reporting |
| Internal control | A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. |
| Material weakness in internal control | A Deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim FS will not be prevented or detected on a timely basis |
| Monitoring | The component of internal control that determines whether the controls, including all five components, are present and continuing to function effectively. |
| Ongoing evaluations | Monitoring procedures that are built into the normal recurring activities of an entity. |
| Output controls | Controls designed to provide reasonable assurance that all data are completely processed and that output is distributed only to authorized recipients |
| Physical controls over assets | Controls designed to protect and safeguard assets from accidental or intentional destruction and theft. |
| Preventive controls | Controls designed to prevent the occurrence of a misstatement |
| Processing controls | Controls designed to provide reasonable assurance that the correct program is used for processing, all transactions are processed, and the transactions update appropriate files |
| Relevant assertion | A FS assertion, for a given account, is most relevant to determining whether there is a reasonable possibility that the account could contain a material misstatement, without considering the effect of internal controls |
| Risk assessment. | The component of internal control that is the process for identifying and assessing the risks that may affect an organization from achieving its objectives |
| Segregation of duties | A control activity that is designed to protect against the risk that an individual could both perpetrate and cover up a fraud. |
| Self-checking digits | A type of input test that has been developed to test for transposition errors associated with identification numbers |
| Separate evaluations | Monitoring procedures that are conducted periodically, typically by objective management personnel, internal auditors, or external consultants. |
| Significant account | An account that has a reasonable possibility of containing a material misstatement, without considering the effect of internal controls |
| Significant deficiency in internal control | deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting |
| Transaction controls | Control activities implemented to mitigate transaction processing risk that typically affect only certain processes, transactions, accounts, and assertions. These are controls that do not have an entity-wide effect. |
| Transaction trail | Includes the docs and records that allow a user or auditor to trace a transaction from its origination through to its final disposition, or vice versa. |
| Walkthrough | Process where mgmt./auditor follows a Tx from origination through the org's processes until reflected in the org's financial records. Process incl: comb of inquiry, observation, insp of documentation making up the Tx trail, and reperformance of ctrls |
Created by:
Dawn1231
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