One of three categories of financial statement assertions, relating primarily to assets, liabilities, and equity interests.
An approximation of a financial statement element, item, or account used because data either is not readily ava ilable or is dependent upon the outcome of future events.
A request for independent verification of payables.
A request for independent verification of receivables. Note that confirming accounts receivable is a required, generally accepted auditing procedure.
A financial statement assertion in the "transactions and events" category indicating that amounts and other data relating to recorded transactions and events have been recorded properly.
A financial statement assertion in the "presentation and disclosure" category indicating that financial and other information are disclosed fairly and at appropriate amounts.
A ratio that measures how effectively an enterprise is using its assets.
An auditor's report stating that the financial statements "do not present fairly .... "
A listing of accounts receivable categorized by age (i.e., current, 30 to 60 days, 60 to 90 days, etc.).
An attestation engagement in which a practitioner performs specific procedures on underlying subject matter or subject matter information and reports the findings without providing an opinion or conclusion .
Guidelines for the behavior of members of the American Institute of Certified Public Accountants (AICPA) in the conduct of their professional affairs.
In sampling, a "cushion" for protection against undetected deviations that is added to the sample deviation rate to arrive at the upper deviation rate.
Evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data.
The financial reporting framework that is acceptable in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation.
Information processing controls that apply to the processing of individual "applications" (e.g., controls surrounding receivables, controls surrounding payroll, etc.).
The measure of the quality (both relevance and reliability) of audit evidence in providing support for auditor conclusions.
A document filed with the state to create a corporation.
A declaration about whether a subject matter is based on or in conformity with selected criteria. See also financial statement assertions.
An attestation engagement in which the practitioner obtains reasonable assurance by obtaining evidence about the responsible party's measurement or evaluation of the underlying subject matter against criteria in order to be able to draw reasonable conclusions about whether the subject matter is in accordance with (or based on) the criteria or the responsible party's assertion is fairly stated.
A relationship that arises when an accountant consents to the use of his or her name in connection with financial statements, or when an accountant has prepared the financial statements.
A situation in which the group engagement partner decides to assume responsibility for the work performed by a component auditor, and therefore does not refer to the component auditor in the auditor's report.
In an examination or review attest engagement, attestation risk is the risk that the practitioner expresses an inappropriate opinion or conclusion, respectively, when the subject matter information or assertion is materially misstated.
An engagement in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party.
A statistical sampling method used to estimate the rate of occurrence of a specific characteristic or attribute in a population.
Four characteristics used in analyzing risk: type, significance, likelihood, and pervasiveness.
A methodical review and objective examination of an enterprise's financial statements.
A proposed correction to the financial statements resulting from the auditor's procedures.
A committee of the board of directors, generally made up of three to five members of the board who are "outside directors;" responsible for the selection and appointment of the independent external auditor, and for reviewing the nature and scope of the engagement.
ADAs involve analyzing patterns, identifying anomalies, and extracting other useful information in data underlying or related to the subject matter of an audit through analysis, modeling, and visualization.
The principal record of procedures performed, evidence obtained, and conclusions reached; also called "working papers" or "workpapers."
The underlying information used by the auditor in reaching audit conclusions. The information corroborates or contradicts assertions in the financial statements.
Goals of audit testing, developed in light of financial statement assertions.
A listing of audit procedures necessary to accomplish the objectives of the audit; required for every audit.
The risk that an auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated.
The risk that the auditor may unknowingly fail to appropriately modify the opinion on compliance in a compliance audit. It comprises the risk of material noncompliance and detection risk of noncompliance.
The testing of less than 100 percent of the items within an account balance or class of transactions in order to evaluate some characteristic of the balance or class.
An overall plan for the audit, typically used to develop the more detailed audit plan.
Evidence indicative of the sequential flow of accounting operations.
A technique in which the auditor tests the input data, processes the data independently, and then compares his or her independently determined results to the program results.
Tasks performed to accomplish the objectives of the audit.
An independent bank verification of year-end bank balances; also may provide information regarding loans, contingent liabilities, discounted notes, pledged collateral, and guarantees or security agreements.
A schedule that compares the cash balance reported by the bank with the cash balance reported by the client, and explains any differences.
A schedule that itemizes transfers of cash among banks, including the record date per the client and the transaction date per the bank.
The threat that an auditor will, as a result of political, ideological, social, or other convictions, take a position that is not objective.
A shipping document issued by a carrier evidencing receipt of goods and terms of transport.
A confirmation in which the recipient is requested to fill in the balance.
In sampling, the selection of groups of adjacent items.
An open exchange of ideas; required during planning as a means of evaluating the potential for material misstatement due to fraud.
Unaudited summarized interim information for subsequent periods.
A financial statement assertion in the "transactions and events" category indicating that transactions and events have been recorded in the proper accounts.
A financial statement assertion in the "transactions and events" category indicating that financial information is appropriately presented and described and disclosures are clearly expressed.
An audit approach in which both tests of the operating effectiveness of controls and substantive procedures are used. If controls are operating effectively, less assurance will be required from substantive procedures.
Restated financial statements in which each balance sheet component is expressed as a percentage of total assets, and each income statement component is expressed as a percentage of total revenue.
An engagement in which an accountant presents in the form of financial statements information that is the representation of management.
A financial statement assertion appearing in all three assertion categories and indicating that all transactions, events, assets, liabilities, and equity interests that should have been recorded have been recorded, and that all disclosures that should have been included in the financial statements have been included.
An engagement under GAAS (and sometimes GAGAS) in which the auditor reports on whether the entity complied, in all material respects, with the compliance requirements applicable to its programs. Additional Single Audit Act requirements may apply.
An entity or business activity that prepares financial information that is included in the group financial statements.
An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be part of the group engagement partner's firm, a network firm, or another firm.
Interrelated elements of internal control used to achieve an entity's objectives; internal control components consist of: control environment, risk assessment, information and communication systems, monitoring, and (existing) control activities.
Electronic methods used to test an automated transaction processing system; emphasis is placed on the input and processing stages of transaction processing.
Approval of the issuance of the engagement report granted by the engagement quality reviewer under PCAOB standards. A firm cannot give an issuer permission to use the engagement report until concurring approval of issuance has been granted.
Historical financial information that is presented in less detail than a complete set of financial statements, in accordance with an appropriate financial reporting framework. Condensed financial statements may be separately presented as unaudited financial information or may be presented as comparative information.
In sampling, a measure of how certain the auditor wants to be that his or her results are accurate. Note that the confidence level plus the risk of being ineffective equals 100 percent.
A direct written response to the auditor from a third party, either in paper form or by electronic or other medium.
Goods belonging to one party that are held for sale by another party; the seller does not pay the owner until the goods have been sold.
A measure of the comparability of financial statements from one year to the next.
An event that may, but is not certain to, occur. A loss contingency that is probable and that can be reasonably estimated should be reflected in the accounts.
A fee established for performing services when no fee is charged unless a specific finding or result is obtained, or the fee amount is dependent upon the finding or result obtained.
An accountant with whom the client has an ongoing relationship, as opposed to an accountant hired only to report on the application of accounting principles.
The policies and procedures that help ensure that management directives are carried out and that necessary steps are taken to address risks.
A weakness that exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
The tone of an organization, including management attitude, participation of those charged with governance, organizational structure, and human resource policies.
The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity's internal control.
The risk that noncompliance with a compliance requirement that could be material will not be prevented or detected on a timely basis by an entity's internal control.
A form of parallel simulation in which the auditor observes an actual processing run and compares the actual results to the expected results based on the auditor's own program.
A form of parallel simulation in which the auditor uses an archived copy of the program in question (generally the auditor's control copy) to reprocess transactions. The results are then compared with the results from the normal processing run.
Support that gives validity to recorded accounting data.
A ratio that measures security for long-term creditors and/or investors.
A determination by the credit department regarding whether or not a specific customer may receive goods on open account.
An internal document used to indicate a credit to a particular account, typically accounts receivable.
Those matters arising from the current period audit of the financial statements that are communicated or required to be communicated to the audit committee and that relate to accounts or disclosures that are material to the financial statements and involve especially challenging, subjective, or complex auditor judgment.
To verify the mathematical accuracy of a statement or schedule by adding rows of numbers across, from left to right.
A collection of audit documentation applicable to the year under audit.
A financial statement assertion in the "transactions and events" category indicating that transactions and events have been recorded in the correct accounting period.
A bank statement sent directly to the auditor, usually shortly after period end.
An examination of transactions occurring several days before and several days after year-end, to ensure that they were recorded in the proper accounting period.
Theft of an entity's assets when the effect of the theft causes the financial statements not to be presented in conformity with GMP.
The risk that an auditor will not detect a material misstatement that exists in a relevant assertion.
The risk that the auditor will not detect material noncompliance that exists.
In sampling, the error rate found in a sample, used to estimate the overall error rate in the population.
A sampling plan that uses the average difference between the audited (correct) values of items and their book values to project the actual population value.
An attestation engagement in which the practitioner obtains reasonable assurance by measuring or evaluating the underlying subject matter against the criteria and performing other procedures to obtain evidence to express an opinion that conveys the results of the measurement or evaluation. No assertion is provided by the responsible party.
Following an audit trail either forward (from source documents to financial records) or backward (from financial records to source documents).
An auditor's report stating that the auditor does not express an opinion on the financial statements.
A special type of attribute sampling appropriate when the auditor believes that the population deviation rate is zero or near zero.
The end of the period during which the auditor assembles the final audit documentation file. After this date, existing documentation must not be deleted, and additions to the workpapers must be documented as such. Auditing standards define this date as 60 days following the report release date; PCAOB standards define it as 45 days following the report release date.
An audit procedure in which the auditor uses the same transaction as both a test of controls and a substantive test.
A section of application program code that collects transaction data for the auditor.
A paragraph included in the auditor's report when required by GMS or at the auditor's discretion when referring to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to the users' understanding of the financial statements. Emphasis-of-matter paragraphs are used by nonissuers only.
A document identifying all significant audit findings and issues; required by PCAOB standards for audits of issuers.
A written communication documenting the understanding between an accountant and a client.
The partner responsible for the overall quality of the engagement.
A review required by PCAOB standards that is performed by a partner who is not otherwise associated with an issuer audit engagement. The engagement quality reviewer evaluates the significant judgments made by the engagement team and the overall conclusion reached on the engagement.
Controls related to the control environment, management override of controls, the company's risk assessment process, centralized processing, monitoring the results of operations, monitoring other controls, period-end financial reporting, and po.licies that address significant business controls and risk management practices.
An unintentional misstatement or omission of an amount or disclosure in the financial statements.
An engagement that provides positive assurance (an opinion) based on procedures such as search, verification, inquiry, and analysis.
A financial statement assertion in the "account balances" category indicating that assets, liabilities, and equity interests exist.
In sampling, the auditor's best estimate of the rate of deviation from a prescribed control procedure.
An explanatory paragraph is included in the auditor's report when required by PCAOB auditing standards or at the auditor's discretion whenever the auditor wishes to emphasize a matter regarding the financial statements. Explanatory paragraphs are used for issuers only.
The degree to which an audit test is performed; a greater extent of testing is achieved by increasing sample size, performing testing at a more detailed level, or performing more extensive tests.
Information obtained from independent sources outside the enterprise, excluding those acting in the capacity of a management's specialist.
Misstatements about which there is no doubt.
Accurate representation in the financial statements, within a range of acceptable limits, of a company's financial position, results of its operations, etc.
A financial reporting framework that requires compliance with the requirements of the framework, acknowledges explicitly or implicitly that it may be necessary for management to provide disclosures beyond those specifically required by the framework in order to achieve fair presentation of the financial statements, and acknowledges explicitly that it may be necessary for management, in extremely rare circumstances, to depart from a requirement of the framework to achieve fair presentation of the financial statements.
The amount at which an asset could be bought or sold (or the amount at which a liability could be incurred or settled) in a current transaction between willing parties.
The threat that aspects of a relationship with management or personnel of an audited entity, such as a close or long relationship, or that of an immediate or close family member, will lead an auditor to take a position that is not objective.
A financial statement that reflects the expected financial results of a future period based on expected conditions and expected courses of action.
A financial statement that reflects the financial results of a future period based on hypothetical ("what if") assumptions.
Claims made implicitly or explicitly by management about the recognition, measurement, presentation, and disclosure of information in the financial statements. Financial statement assertions fall into three categories: transactions and events, account balances, and presentation and disclosure.
A symbolic diagram representing the sequential flow of authority, processes, and documents.
To verify the mathematical accuracy of a statement or schedule by adding columns of numbers from top to bottom.
A form that auditors of issuers are required to file with the PCAOB for each audit report issued and which includes information about the audit.
An intentional action that results in misstatement of the financial statements.
Three conditions that generally are present when fraud occurs: incentives/pressures (a reason to commit fraud); opportunity (a lack of effective controls); and rationalization/attitude (an attempt to justify fraudulent behavior).
Intentional misstatements or omissions of amounts or disclosures in the financial statements that are designed to deceive financial statement users.
Information processing controls that apply broadly throughout the company (e.g., access controls, controls related to software/hardware acquisition and maintenance, and controls over data center/network operations).
Software that is used to interrogate files, extract and analyze data, and allow performance of tests directly on the client's system.
The set of accounting rules established by the Financial Accounting Standards Board.
Qualitative standards that provide a measure of audit quality and of the objectives to be achieved in an audit.
Standards for audits of government organizations, and audits of government assistance received by nongovernmental and government organizations.
A financial reporting framework designed to meet the needs of a wide range of users, such as U.S. GAAP or IFRS.
A report that is not restricted to specified parties.
The belief that an entity will continue to operate into the foreseeable future.
An engagement that provides an opinion on financial statements as well as testing and reporting on compliance with the laws and regulations that authorize the spending of public funds.
The partner or other person in the firm who is responsible for the group audit engagement and for the auditor's report on the group financial statements.
The team, which includes the group engagement partner, other partners, and staff, that establishes the overall audit strategy, communicates with component auditors, performs work on the consolidation process, and evaluates the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements.
Financial statements that include the financial information of more than one component.
A transaction not involving the facts or circumstances of a specific entity.
A control that has been implemented exists and is being used.
Clearly immaterial, as determined by a "reasonable person" standard.
The quality of being without bias and free from any obligation to or interest in the client, its management, or its owners.
A component of internal control that deals with the identification, capture, and exchange of information in a timely and useful manner (information) and with an understanding of individual roles and responsibilities (communication).
Automated means of originating, processing, storing, and communicating information.
The provision that the auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement because of the nature of financial reporting, the nature of audit procedures, the timeliness of financial reporting, and the balance between cost and benefit.
The provision of only reasonable (as opposed to absolute) assurance regarding the achievement of internal control objectives. Inherent limitations arise due to human error, deliberate circumvention of controls by collusion, management override, and the difficulty of achieving appropriate segregation of duties in smaller entities.
A paragraph included in a report on an entity's internal control indicating that undetected misstatements may occur, and that projections of the evaluation to future periods are subject to the risk that conditions may change.
The susceptibility of a relevant assertion to a material misstatement, assuming that there are no related controls.
The susceptibility of a compliance requirement to noncompliance that could be material, assuming that there are no related controls.
An engagement in which the financial statements of the prior period were not audited or were audited by a predecessor auditor.
A concurrent audit of both the financial statements and internal control over financial reporting. PCAOB standards require an integrated audit for all issuers. Integrated audits can also be performed for non issuers under the SSAE.
A computer assisted audit technique in which client personnel unknowingly process a set of test data, the proper results of which are already known.
The performance of auditing procedures before year-end.
Financial information covering a period less than a full year or a 12-month period ending on a date other than the entity's fiscal year-end.
A company employee who performs auditing functions for use by management and the board of directors.
A process effected by those charged with governance and management, and other personnel, designed to provide reasonable assurance about the achievement of the entity's objectives.
A list of questions, typically answered by a yes or no response, addressing relevant control procedures.
Information generated within the enterprise.
Tags that are attached to inventory items to aid in the counting of inventory.
A ratio that provides information of interest to investors.
Entities subject to the rules of the PCAOB (primarily public companies).
Someone possessing specialized knowledge in information technology (IT) participating in the audit.
Differences that arise from the judgments of management concerning accounting estimates that the auditor considers unreasonable, or the selection and application of accounting policies that the auditor considers inappropriate.
Matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period.
A scheme whereby a check drawn on one bank is deposited in another bank, but the disbursement is not recorded on a timely basis, resulting in an overstatement of cash.
A scheme whereby a current receipt of cash (or a check) is stolen. To prevent detection, a subsequent receipt is applied to the previously unrecorded customer account.
A direct letter sent to the client's attorney detailing any pending or threatened litigation matters and requesting the attorney to provide his or her evaluation directly to the independent auditor.
A report that is intended only for specified parties.
A ratio that measures a firm's short-term ability to pay maturing obligations.
A system in which customers send their payments directly to the bank, preventing access by company employees.
Generally speaking, programs that expend $750,000 or more in federal financial assistance (specific guidelines are based on formulas prescribed in federal regulations and the Single Audit Act).
The circumvention of established controls by executives of a company.
The threat that results from an auditor's taking on the role of management or otherwise performing management functions on behalf of the entity undergoing an audit.
A letter the auditor is required to obtain from management at the conclusion of fieldwork, confirming representations explicitly or implicitly given to the auditor, indicating and documenting the continuing appropriateness of such representations, and reducing the possibility of misunderstanding regarding the representations.
The section of a public company's annual report that comprises management's comments regarding performance during the most recent period, background information on the company, etc. The requirements for MD&A are established by the SEC.
Volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year.
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 by the omission or misstatement.
A deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis.
Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
A sampling plan that uses the average value of the items in the sample to estimate the true population value.
Theft of an entity's assets, when the effect of that theft causes the financial statements not to be presented in conformity with GAAP.
A departure from the applicable reporting framework (e.g., GAAP) that, if material, causes the financial statements to not be presented fairly. Misstatements may be classified as fraud (intentional), other illegal acts such as noncompliance with laws and regulations (intentional or unintentional), and errors (unintentional).
An auditor's opinion issued when the auditor concludes that the financial statements are materially misstated or the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements are free from material misstatement. The three types of modified opinions are the qualified opinion, the adverse opinion, and the disclaimer of opinion.
The process of assessing the quality of internal control performance over time.
At least reasonably possible to occur.
A written version of a flowchart describing the auditor's understanding of the system of internal control.
The quality of an audit test as measured in terms of the relevance and reliability of the evidence it provides. The nature of an audit procedure includes both its purpose and its type.
A statement indicating that, as a result of performing certain procedures, nothing came to the accountant's attention indicating that the subject matter in question did not meet a specified standard.
A confirmation in which a response is requested only if the amount stated is incorrect.
An act of omission or commission by an entity, whether intentional or unintentional, which is contrary to prevailing laws and regulations. Such acts may be committed by, or in the name of, the entity or on its behalf by those charged with governance, management, or employees. Noncompliance does not include personal misconduct unrelated to the business activities of the entity.
Entities that are not subject to the rules of the PCAOB (generally nonpublic companies).
A subsequent event that relates to conditions existing after the balance sheet date that generally requires footnote disclosure, but rarely requires an adjustment to the financial statements.
All aspects of audit risk that are not due to sampling (e.g., selecting inappropriate audit procedures, failing to recognize a misstatement in documents examined, etc.)
A method of sampling in which auditors use their judgment (rather than mathematical formulae) to estimate risk, determine sample size, and evaluate sample results.
An entity's goals, often categorized as reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.
A method of obtaining audit evidence that provides the auditor with direct personal knowledge (e.g., viewing tangible assets, reviewing a process or operating procedure, etc.).
Financial data presented in accordance with a comprehensive basis of accounting other than GMP.
A financial statement assertion in the "transactions and events" category indicating that transactions and events that have been recorded have occurred and pertain to the entity.
A financial statement assertion in the "presentation and disclosure" category indicating that disclosed events and transactions have occurred and pertain to the entity.
A measure of the extent to which controls achieve their stated goals; evaluated by using tests of controls to address how, by whom, and with what level of consistency control policies and procedures have been applied.
An auditor who examines a portion of the financial statements, but is not deemed to be the principal auditor.
A paragraph included in the auditor's report, when required by GMS or at the auditor's discretion, that refers to matters other than those presented or disclosed in the financial statements that are relevant to the users' understanding of the audit, the auditor's responsibilities, or the auditor's report. Other-matter paragraphs are used by nonissuers only.
Members of the board of directors who are neither employees nor part of management and who do not have a material financial interest in the company.
A technique by which the auditor reprocesses some or all of the client's live data (using the auditor's own software) and then compares the results with the client's files.
A presentation of prospective financial information that excludes one of the following essential elements: sales, gross profit (or cost of sales), unusual or infrequent items, income tax expense, discontinued operations, income from continuing operations, net income, earnings per share, or significant changes in financial position.
An accounting journal containing a record for each employee, with each record including data such as name, identification number, gross pay (regular and overtime), income taxes withheld, other deductions, and net pay.
A range of engagements with specific governing standards from the Yellow Book that may embrace one of four objectives: effectiveness, economy, and efficiency; internal control; compliance; or prospective analysis.
The amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
A collection of audit documentation that has a continuing interest from year to year.
Effects on the financial statements that, in the auditor's professional judgment, are not confined to specific elements, accounts, or items of the financial statements, or, if so confined, represent a substantial portion of the financial statements, or are disclosures fundamental to the users' understanding of the financial statements.
Controls used to safeguard assets (e.g., security devices, limited access to restricted areas, periodic counting and comparison, etc.).
Expressions of opinion as to certain identified line items in the financial statements, when those items constitute a major portion of the financial statements.
The development of an overall strategy for the audit.
In sampling, an approximation of the true balance of an account, determined by applying the projected misstatement to the recorded balance.
In sampling, the entire group under consideration; a sample is used to estimate population characteristics.
An affirmative statement or opinion given by the auditor, generally based on a high level of work performed.
A confirmation in which the recipient is requested to respond regardless of whether the information included (if any) is accurate.
Information can be reasonably obtained from management's accounts and records, and providing that the information in the auditor's report does not require the auditor to assume the position of a preparer of financial information.
In sampling, an allowance for sampling risk that is added to a point estimate to provide a range within which the true population value is expected to fall.
Requirements that must be met before an audit can be accepted, including determining that the financial reporting framework used by the client is acceptable and obtaining an agreement from management that it acknowledges and understands certain responsibilities.
An auditor who has reported (or who was engaged to report) on the most recent financial statements.
The objective of a preparation engagement is to prepare financial statements in accordance with a specified financial reporting framework. The CPA does not perform any audit or review procedures. A preparation provides no assurance and is considered a non-attest service. Therefore, it does not require a determination of whether the accountant is independent of the entity.
One of three categories of financial statement assertions, relating primarily to disclosure in the financial statements.
A sampling technique in which the sampling unit is defined as an individual dollar in a population. Once a dollar is selected, the entire account (containing that dollar) is audited.
The maintenance of an objective attitude throughout the audit, including a questioning mind and a critical assessment of evidence. The auditor neither presumes management dishonesty nor presumes unquestioned management honesty.
A ratio that measures the success or failure of an enterprise over a given period.
Financial statements used to demonstrate the effect of a proposed transaction or event by showing how it might have affected the historical financial statements, if it had occurred during the period covered by those statements.
A governmental audit used in situations when no overall opinion is rendered on the financial statements. A program-specific audit must follow specialized rules designed for the particular type of program involved.
In sampling, an estimate of the total error in a population, determined by finding the error in a sample and adding an adjustment for sampling risk.
Financial statements that attempt to reflect a company's expected financial position and expected results of operations. See also financial forecast and financial projection.
A regulatory body created pursuant to the Sarbanes-Oxley Act of 2002. The PCAOB establishes auditing and related professional practice standards to be used in the preparation and issuance of audit reports for "issuers."
A document or form generated by a customer (typically within the customer's purchasing department), identifying goods or services to be purchased.
A document or form generated by a user group, requesting goods or services; serves as a request for the purchasing department to prepare a purchase order.
An auditor's report stating that "except for" the effects of the matter(s) to which the qualification relates, the financial statements are presented fairly, in all material respects.
A system designed to ensure that services are competently delivered and adequately supervised. A firm's quality control system is composed of five elements: acceptance and continuance of clients and engagements; independence, integrity, and objectivity; monitoring; personnel management; and engagement performance.
Expenditures deemed to be non-allowable, undocumented, or unreasonable for reimbursement under a grant.
A sample selected in such a way that every item in the population has an equal chance of being included in the sample.
A financial indicator that distills relevant information about a business entity by quantifying the relationships among selected items in the financial statements.
The comparison of financial ratios developed from recorded amounts to expected ratios developed by the auditor, as a means of distilling relevant information about a business entity.
A sampling plan that uses the ratio of the audited (correct) values of items to their book values, to project the true population value.
The high, but not absolute, level of assurance that is intended to be obtained by an auditor.
Receiving Report
A document or form used to indicate that purchased goods have been received and inspected.
A subsequent event that relates to a condition existing on or before the balance sheet date and generally requires adjustment to the financial statements.
The process of comparing financial amounts from two independent sources for agreement.
An informational document filed with the SEC to register securities for public offering.
A report that is issued subsequent to the date of the original report, but which bears the same date as the original report, indicating that no additional work has been performed since that date.
A reporting entity's affiliates, principal owners, and management; also, any members of their immediate families.
An assertion that has a meaningful bearing on whether an account is fairly stated.
A report on the design and implementation of a service organization's controls. It does not provide assurance on the operating effectiveness of controls. See also Type 1 Report.
A report on the design, implementation, and operating effectiveness of a service organization's controls. See also Type 2 Report.
The date on which the auditor grants the client permission to use the report.
An accountant in public practice who prepares a written report (or provides oral advice) on the application of accounting principles or on the type of opinion that may be rendered.
A sample whose characteristics are comparable to the characteristics of the population from which the sample was drawn.
A person, other than the practitioner, who is accountable for the underlying subject matter or, if no such person exists, a person who has a reasonable basis for making a written assertion about the underlying subject matter.
A report that is intended only for specified parties.
An endorsement limiting future actions on an item (e.g., "for deposit only" marked on the back of a check).
The period for which audit documentation must be kept. Auditing standards define this period as five years from the report release date; PCAOB standards define it as seven years from the report release date.
An attestation engagement in which the practitioner obtains limited assurance by obtaining sufficient appropriate review evidence about the responsible party's measurement or evaluation of underlying subject matter aga inst criteria in order to express a conclusion about whether any material modif ication should be made to the subject matter information in order for it to be in accordance with (or based on) the criteria, or to the responsible party's assertion in order for it to be fairly stated.
A financial statement assertion in the "account ba lances" category indicating that the entity holds or controls the rights to assets, and that liabilities are the obligations of the entity.
The process by which an auditor obta ins an understanding of an entity and its environment, including its internal contro l, in order to evaluate the likelihood of material misstatement.
An entity's identification and analysis of risks to the achievement of its objectives.
In sampling, the risk that the assessed level of control risk based on the sample is greater than the true risk based on the actual operating effectiveness of the control (i.e., sample results indicate a greater deviation rate than actually exists in the population). Note that this risk relates to tests of controls and to audit efficiency.
In sampling, the risk that the assessed level of control risk based on the sample is less than the true risk based on the actua l operating effectiveness of the contro l (i.e., sample results indicate a lower deviation rate than actually exists in the population). Note that this risk relates to tests of controls and to aud it effectiveness.
In sampling, the risk that the sample supports the conclusion that the recorded account ba lance is not materially misstated when in fact it is materially misstated (i. e., sample resu lts fail to identify an existing material misstatement). Note that t his risk relates to substantive testing and to· audit effectiveness.
In sampling, the risk that the sample supports the conclusion that the recorded account balance is materially misstated when in fa ct it is not materially misstated (i.e., sample results mistakenly indicate a material misstatement). Note that this risk re lates to substantive testing and to audit efficiency.
The susceptibility of the financ ial statements to error. The risk of material misstatement is composed of inherent risk and control risk.
The risk that material noncompliance exists, composed of the inherent risk of noncompliance and control risk of noncompliance.
Controls designed to eliminate or reduce to an acce ptable level threats to independence.
A bill sent to a customer indicating goods and services sold, prices applied, payment terms, etc.
A form or document prepared upon receipt of a customer purchase order indicating goods or services to be provided to that customer.
In PPS sampling, a range of dollars from which each sampling unit will be selected (e.g., in a population of $500,000 with a sampling interval of $5,000, there would be 100 sampling intervals; the sample would consist of 100 items, with one item being selected from each of the 100 intervals).
In sampling, the risk that the sample is not representative of the population, and that the audit or's conclusion therefore will be different from the conclusion that would have been rea ched had the tests been applied to all items in the population.
In sampling, an item selected from the population for testing.
Legislation that amended federal securities laws after a series of corporate financial scandals exposed serious weaknesses in the self-regulating system that had been intended to provide rel iable company financial statements.
A restriction on an engagement that occurs when the accountant is unable to fully complete necessary procedures.
Audit procedures that aid the auditor in identifying obligations that should have been recorded at the balance sheet date, but were not.
A governmental commission of the United States given the authority to set guidelines for publicly traded companies.
Information about certain portions of an enterprise, presented in the annual financial statements of public companies (e.g., information about products and services, about geographic areas, or about major customers).
The separation of the authorization, record keeping, and custodial functions to ensure that individuals do not perform incompatible duties.
Additional financial information presented by management that is not a required part of the basic financial statements.
The threat than an auditor or audit organization that has provided non-audit services will not appropriately evaluate the results of previous judgments made or services performed as part of the non-audit services when forming a judgment significant to an audit.
The auditor of a service organization.
An outside organization hired to process some portion of another company's accounting transactions (e.g., a payroll processing company such as ADP).
Reports developed by the AICPA to be issued by CPAs in connection with the evaluation of "system-level controls" and "entity-level controls" for service-based firms.
Findings that should be included in the audit documentation because they are related to the selection and application of accounting principles or to possible material misstatements in the financial statements; or because they cause significant difficulty in, or indicate the need for significant revision of, necessary audit procedures; or because they may result in modification to the auditor's standard report.
A component that is of individual financial significance to the group or that is likely to include significant risks of material misstatement of the group financial statements.
A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Exists when the engagement team fails to obtain sufficient appropriate evidence, the engagement team reaches an inappropriate overall conclusion, the engagement report is not appropriate for the circumstances, or the firm is not independent of the client. The existence of a significant engagement deficiency prevents the engagement quality reviewer from providing concurring approval of issuance.
Estimates at the balance sheet date that could change materially within the next year.
A risk which, in the auditor's judgment, requires special audit consideration.
An audit of entities expending federal assistance and that has two main components: an audit of the entity's financial statements and separate schedule of expenditures of federal awards, and a compliance audit of major federal awards.
A federal act requiring entities that expend federal assistance equal to or in excess of $750,000 annually to have a program-specific or entity-wide audit that complies with the act.
A person or firm with special skills in a field other than accounting or auditing (e.g., actuaries, appraisers, attorneys, engineers, etc.).
A financial reporting framework other than GMP that is one of the following bases of accounting: cash basis, tax basis, regulatory basis, contractual basis, or any other basis of accounting that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in the financial statements.
A mathematical measure of population variability.
Standards issued by the Auditing Standards Board (ASB) of the AICPA.
Standards established by the AICPA to regulate the provision of services to privately held companies not seeking audited statements.
Standards issued by senior technical bodies of the AICPA regarding attest engagements, including engagements with respect to agreed-upon procedures; financial forecasts and projections; proforma financial statements; internal control over financial reporting; compliance; and management's discussion and analysis.
A method of sampling in which auditors use mathematical formulae (rather than simply using judgment) to quantify risk, determine sample size, and evaluate sample results.
A collection of the documents used to evidence ownership of shares in a corporation.
A person hired to maintain records with respect to the transfer (i.e., purchase, sale, etc.) of corporate securities.
In sampling, a method designed to avoid oversampling for attributes by allowing the auditor to stop an audit test before completing all steps, if the results have become clear.
In sampling, the separation of the total population into several relatively homogeneous groups, with each group then treated as a separate population.
The threat that an audit organization's placement within a government entity, in combination with the structure of the government entity being audited, will affect the audit organization's ability to perform work and report results objectively.
The outcome of the measurement or evaluation of the underlying subject matter against criteria.
Presentation offinancial statements prepared by the accountant to a client or third party.
Events or transactions that occur after the balance sheet date, but before the financial statements are issued.
Procedures the auditor is required to perform for the period after the balance sheet date up to the date of the auditor's report.
The period between the date of the financial statements and the date of the auditor's report.
An audit approach in which only substantive procedures will be performed, either because controls are nonexistent or because it would be inefficient to test controls.
Tests of details of transactions and balances and analytical review procedures designed to substantiate the account balances shown in the financial statements.
The measure of the quantity of audit evidence considering both the auditor's assessment of risk and the quality of audit evidence obtained.
Information outside the basic financial statements that is nevertheless required because it is considered an essential part of the financial reporting for that specific entity.
In sampling, a method of sample selection whereby every nth item in the population is chosen as part of the sample.
An auditor's tally of a specific inventory item, which is later compared with the physical inventory report as a means of testing that report.
A computer assisted audit technique in which the auditor uses the client's application program to process, off-line, a set of test data for which the proper results are already known.
Audit tests used to obtain evidence about the operating effectiveness of a control by determining how, by whom, and with what level of consistency controls have been applied. Tests of controls include inquiry, inspection, observation, and reperformance, and they are performed when the auditor's risk assessment is based on the assumption that controls are operating effectively.
Substantive audit procedures that are applied to transaction classes, account balances, and disclosure items in order to substantiate the amounts and disclosures reflected in the financial statements.
Those who bear responsibility to oversee the obligations and strategic direction of an entity.
A symbol indicating that a specific audit procedure has been performed.
Audit tests may be performed at an interim date or at period end. The higher the assessed risks of material misstatement, the closer to period-end substantive procedures should be performed. Performing audit procedures before period end allows earlier identification of significant matters; however, additional evidence is necessary for the remaining period. In considering the timing of audit tests, the auditor should consider when relevant information is available. Some procedures occur only at certain times and electronic data may not be retained indefinitely.
In sampling, the maximum rate of deviation from a prescribed procedure that the auditor will tolerate without modifying planned reliance on internal control.
In sampling, the maximum monetary misstatement in an account balance or class of transactions that may exist without causing the financial statements to be materially misstated. Tolerable misstatement is the application of performance materiality to a particular sampling procedure.
Approach used when selecting controls to test in an integrated audit in which the auditor evaluates overall risks at the financial statement level, considers controls at the entity level, and then focuses on accounts, disclosures, and assertions for which there is a reasonable possibility of material misstatement.
Directional testing that starts with source documents and traces forward to provide assurance that an event is being given proper recognition in the financial statements (i.e., testing completeness). Note that the term "tracing" is sometimes used generically to mean comparing one item to another, without indication of direction.
A technique used by the auditor to electronically mark (or "tag") specific transactions and follow them through the client's system.
One of three categories of financial statement assertions, relating primarily to the recording of items affecting the financial statements.
Stock issued by a company that is subsequently reacquired from shareholders, so that it is no longer considered "outstanding."
A report on the design and implementation of a service organization's controls. It does not provide assurance on the operating effectiveness of controls.
A report on the design, implementation, and operating effectiveness of a service organization's controls.
A matter for which conclusive evidential matter concerning its outcome is not currently available and will not be available until sometime in the future.
The books and records of a company.
The phenomenon that is measured or evaluated by applying criteria, or the phenomenon upon which procedures are performed.
Knowledge of the design of relevant controls and whether they have been implemented. The auditor's understanding of internal control is used to assess the risk of material misstatement and to design further audit procedures.
The threat that external influences or pressures will affect an auditor's ability to make independent and objective judgments.
An auditor's report for a nonissuer stating that the financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework.
An auditor's report for an issuer stating that the financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework.
A report on previously issued financial statements that takes into consideration information that the accountant has become aware of during the current engagement, and includes any necessary revisions to the original report.
In sampling, the sum of the sample deviation rate and the allowance for sampling risk.
The auditor of a company that makes use of an outside service organization.
A financial statement assertion in the "account balances" category indicating that assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
A statistical sampling method used to estimate the numerical measurement of a population, such as a dollar value (e.g., accounts receivable balance).
A bill for goods or services purchased.
A group of matched documents related to a particular purchase (i.e., a requisition, purchase order, receiving report, and vendor invoice).
Directional testing in which the auditor examines support for what has been recorded, going from the financial statements back to supporting documentation (i.e., testing existence). Note that the term "vouching" is sometimes used generically to mean comparing one item to another, without indication of direction.
The process of tracing transactions relevant to financial reporting through the accounting system from inception through recording in the general ledger and presentation in the financial statements.
The principal record of procedures performed, evidence obtained, and conclusions reached; also called "workpapers" or "audit documentation."