ACCA AA flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Reasonable assurance

A high, but not absolute, level of assurance that the auditor provides; limitations arise from sampling, judgement, and the possibility of collusion and concealment.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk; detection risk is the only element the auditor can directly control.

Materiality

The level at which misstatements, individually or in aggregate, could reasonably influence the economic decisions of users of the financial statements.

Performance materiality

An amount set below overall materiality to reduce to an acceptably low level the probability that aggregate uncorrected and undetected misstatements exceed overall materiality.

Independence threats

Self-interest, self-review, advocacy, familiarity, and intimidation are the five threats to auditor independence identified in the IESBA Code of Ethics.

Fundamental ethical principles

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour are the five principles that underpin the IESBA Code.

True and fair view

The opinion expressed in the auditor's report states whether the financial statements give a true and fair view in accordance with the applicable financial reporting framework.

Auditor appointment

Under companies legislation, auditors are normally appointed by the members of the company and must be independent of the entity being audited.

Significant risk

A risk of material misstatement assessed close to the upper limit of the audit risk spectrum, often involving complexity, judgement, or fraud.

Audit strategy vs plan

The strategy sets scope, timing, direction, and resources; the plan specifies the nature, timing, and extent of audit procedures to be performed.

Analytical procedures timing

Analytical procedures are required at the planning and overall review stages; as substantive procedures they are optional but often efficient.

Inherent risk

The susceptibility of an assertion to a material misstatement before considering any related internal controls that the entity has implemented.

Control risk

The risk that a misstatement will not be prevented, or detected and corrected on a timely basis, by the entity's internal control.

Going concern period

The auditor evaluates management's going concern assessment covering at least twelve months from the date of the financial statements.

Planning as continuous

Under ISA 300, planning is an iterative process that continues throughout the audit, not a phase completed before fieldwork begins.

Engagement partner review

The engagement partner reviews significant judgements and higher-risk areas, including work performed by less experienced members of the team.

COSO components

The five components are control environment, risk assessment, control activities, information and communication, and monitoring activities.

Segregation of duties

Custody of assets, authorisation of transactions, and record-keeping are separated so one person cannot both perpetrate and conceal errors or fraud.

Preventive vs detective controls

Preventive controls stop errors before they occur, such as authorisation; detective controls identify errors after they occur, such as reconciliations.

IT general controls

Controls over access, change management, and operations that support the reliable functioning of application controls across the IT environment.

Tests of control

Procedures that provide evidence about the operating effectiveness of controls; if controls are ineffective, substantive procedures must be increased.

Walk-through test

Tracing a single transaction through the accounting system to confirm the auditor's understanding of the controls and information flows.

Significant deficiency

A deficiency in internal control, or combination of deficiencies, important enough to merit attention by those charged with governance.

Sufficiency and appropriateness

Sufficiency is the quantity of audit evidence; appropriateness is its relevance and reliability in supporting the auditor's conclusions.

Reliability hierarchy

External evidence is more reliable than internal; evidence obtained directly by the auditor is more reliable than indirect evidence.

Assertions for balances

Existence, rights and obligations, completeness, valuation and allocation, and presentation and disclosure are the assertions about account balances.

External confirmation

Direct written response from a third party to the auditor; if no response is received, alternative audit procedures must be performed.

Sampling risk

The risk that the auditor's conclusion based on a sample differs from the conclusion that would be reached using the entire population.

Subsequent events

Events after the reporting date: adjusting events provide evidence of conditions existing at year-end; non-adjusting events require disclosure.

Using an auditor's expert

The auditor may rely on an expert's work but remains responsible for the opinion and must evaluate the expert's competence and objectivity.

Qualified opinion

Issued when misstatements or scope limitations are material but not pervasive; a Basis for Qualified Opinion section follows the opinion.

Key audit matters

Matters of most significance in the audit, selected from those communicated to those charged with governance; required for listed entities.