Term
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Definition
| A systematic process of objectively obtaining and evaluating 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. |
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Term
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| Services occur when a practicioner is engaged to issue or does issue a report on subject matter, or an assertion about subject matter, that is the responsibility of another party |
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Term
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| Are independent professional services that improve the quality of information, or its context, for decision makers |
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Term
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| Auditing encompasses forensic auditing, compliance auditing, financial statement auditing, and internal control auditing. Attestation encompasses auditing plus nonaudit reports on internal control and financial forecasts. Assurance encompasses auditing and attestation plus CPA performance view, CPA Webtrust, CPA Systrust, CPA risk advisory, and PrimePlus services. Auditing and attestation adds value of reliability and credibility. Assurance adds value of reliability, credibility, relevance, and timeliness. |
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Term
| Financial Statement Audit Process (Management) |
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Definition
Implements internal controls
Conducts transactions
Accumulates transactions into account balances
Prepares financial statements
Issues financial statements to users |
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| Financial Statement Audit Process (Auditor) |
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Definition
Obtains evidence
Test management assertions against criteria (GAAP)
Determines overall fairness of financial statements
Issues audit report to accompany financial statements |
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Term
| Financial Statement Audit Process (Both) |
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Definition
| Both are responsible for terms of engagement. Management is responsible for providing evidence and assertions. Auditor is responsible for communication |
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Term
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Definition
| The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially mistated |
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Term
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Definition
| The magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgement of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement |
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Term
| Required Charachteristics of Audit Evidence |
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Definition
| Evidence that assists the auditor in evaluating management's financial statement assertions consists of the underlying accounting data and any corroborating information available to the auditor. Relevance and Reliability. |
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Term
| How Auditors Gather Evidence |
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Definition
| • Auditors use their knowledge about the transactions and/or a sampling approach to examine the transactions. It would be too costly for the auditor to examine every transaction. |
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Term
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Definition
Client acceptance / continuance and establishing engagement terms
Preplanning
Establish materiality and assess risks
Plan the audit
Consider and audit internal control
Audit business processes and related accounts
Complete the audit
Evaluate results and issue audit report |
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Term
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Definition
| The auditor's report (audit opinion) is the main product or output of the audit |
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Term
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Definition
Standard (clean) audit report is the most common type of report issued
• Title line of the audit report includes the word “independent,” and usually, the report is addresses to the stockholders of the company. The audit report includes an introductory paragraph, a scope paragraph, an opinion paragraph, an explanatory paragraph referring to the audit of internal control, the name of the auditor or audit firm, and the date of the audit report |
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Term
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Definition
| If a client's financial statements contain a misstatement that the auditor considers material and the client refuses to correct the misstatement. The auditor will likely qualify the report, explaining that the financial statements are fairly stated except for the misstatement identified by the auditor. |
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Term
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Definition
| Suppose a client's financial statements contain a misstatement that the auditor considers so material that it pervasively affects the interpretation of the financial statements. Given such a situation the auditor will issue an adverse opinion, indicating that the financial statements are not fairly stated and should not be relied upon |
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Term
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Definition
In the late 1900’s and early 2000’s, accounting firms aggressively sought opportunities to market a variety of high-margin nonaudit services to their clients.
Then scandals arose such as Enron, Tyco, WorldCom, etc.
In July 2002, Congress passed the Sarbanes-Oxley Public Company Accounting Reform Act (SOX)
SOX effectively ended the profession’s era of “self-regulation,” creating and transferring authority to the Public Company Accounting Oversight Board (PCAOB) |
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Term
| Management Assertions (Transactions) |
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Definition
Transactions - management asserts that transactions related to inventory actually occurred. Occurrence - transactions and events that have been recorded actually occurred and pertain to the entity. Completeness - all transactions and events that should have been recorded have been recorded. Authorization - All transactions and events have been properly authorized. Accuracy - Amounts and other data relating to recorded transactions and events have been recorded appropriately. Cutoff - Transactions and events have been recorded in the proper accounts. |
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Term
Management Assertions (Account Balances) |
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Definition
Account Balances - management asserts that the entity owns the inventory represented in the inventory account. Existence - assets, liabilities, and equity interests exist. Rights and Obligations - the entity holds or controls the rights to assets, and liabilties are the obligation of the entity. Completeness - all assets, liabilities, and equity interests that should have been recorded have been recorded. Valuation and Allocation - assets, liabilties, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. |
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| Management Assertions (Presentation & Disclosure) |
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Definition
Presentation & Disclosure - management asserts that the financial statements properly classify and present the inventory. Occurence & Rights & Obligations - disclosed events, transactions, and other matters have occurred and pertain to the entity. Completeness - all disclosures that should have been included in the financial statements have been included. Classification & Understandability - financial information is appropriately presented and described, and disclosures are clearly expressed. Accuracy and Valuation - financial and other information are disclosed fairly and at appropriate amounts. |
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Term
| Where auditing standards come from |
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Definition
Auditing standards serve as guidelines for and measures of the quality of the auditor's performance. For public companies the standards come from the PCAOB For nonpublic companies the standards come from the Auditing Standards Board |
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Term
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Definition
The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report. |
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Term
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Definition
The work is to be adequatley planned and assitants, if any, are to be properly supervised. A sufficient understanding of interal controls is to be obtained to plan the audit and dertermine the nature, timing, and extent of tests to be performed. Sufficient, competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. |
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Term
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Definition
The report shall state whether the financial statements are presented in accordance with GAAP. The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. The report shall contain either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated. In all cases where an auditor's name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor's work, if any, and the degree of responsibility the auditor is taking. |
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Term
| Statements on Auditing Standards |
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Definition
GAAS and SAS are considered to be minimum standards of performance for auditors SAS are classified by two numbering categories: SAS and AU numbers. |
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Term
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Definition
Public Company Accounting Oversight Board. PCAOB adopted, on an interim basis, GAAS and SAS. Standards issued by the PCAOB are called Auditing Standards (AS). |
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