ACCA AAA key terms

The state of being free from relationships or interests that a reasonable third party would see as compromising objectivity. It has both a mental attitude and an appearance dimension, and underpins the credibility of the audit opinion.

A risk that a financial or other personal interest will improperly influence professional judgement or behaviour, for example a fee dependency on one client or a financial stake in the audited entity.

A risk arising when an auditor evaluates work they previously performed, such as preparing records or designing systems that are later audited, making objective challenge of that work difficult.

A risk that the firm promotes a client's position or defends its interests, for example acting as legal advocate in a dispute, so that subsequent audit judgement appears partisan rather than objective.

A risk that long association or close personal relationships with client staff leads to over-trust, reduced scepticism or excessive sympathy with management's views during the audit.

A risk that an auditor is deterred from acting objectively by actual or perceived pressure, such as threats of litigation, dismissal or loss of engagement from a dominant client director.

Actions or controls, such as independent reviews, rotation or removing a particular service, that reduce an identified ethical threat to an acceptable level rather than eliminating it entirely.

The conceptual approach to ethics in which the auditor identifies threats to compliance with fundamental principles, evaluates their significance, and applies safeguards or declines the engagement if none suffice.

An attitude of questioning and critical assessment of evidence, remaining alert to possible misstatement, bias or fraud rather than accepting management explanations at face value.

The application of relevant training, knowledge and experience to reach informed decisions about the appropriate course of action given the facts and circumstances of an engagement.

The ethical duty not to disclose information acquired through professional work without proper authority, unless there is a legal or professional right or duty to disclose it.

The obligation on auditors to make a suspicious activity report to the relevant authority where they know or suspect proceeds of crime, without tipping off the client.

The process of contacting a predecessor auditor, with client permission, to establish whether there are any ethical or other reasons why a new appointment should not be accepted.

The quality management procedures used to decide whether to take on a new client or keep an existing one, considering integrity, competence, independence and the firm's ability to perform the work properly.

An objective evaluation of the significant judgements and conclusions of the engagement team, performed before the report is issued by a reviewer not involved in the engagement, for listed and higher-risk audits.

The partner or other individual in the firm who is responsible for the engagement and its performance, and for the report issued on behalf of the firm.

A requirement that the engagement partner on listed entity audits steps down after a specified period, typically five years, with a cooling-off period before returning, to counter long association.

A subcommittee of independent non-executive directors that oversees financial reporting, external audit appointment and internal controls, providing a channel for auditors to raise concerns.

The person or persons responsible for overseeing the strategic direction of the entity and its accountability obligations, including oversight of the financial reporting process.

Globally recognised standards issued by the IAASB that set out the auditor's responsibilities and the procedures required to obtain sufficient appropriate evidence and form an opinion.

Information used by the auditor to reach the conclusions on which the opinion is based, judged by whether it is sufficient in quantity and appropriate in relevance and reliability.

The representations by management, embedded in the financial statements, about classes of transactions, account balances and disclosures, which the auditor tests, such as existence, completeness and valuation.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated, made up of inherent, control and detection risk components.

An identified risk of material misstatement that, in the auditor's judgement, requires special audit consideration because of its nature, likelihood or the complexity of related transactions.

The threshold above which omissions or misstatements could reasonably influence the economic decisions of users taken on the basis of the financial statements, set in the context of the entity.

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed materiality for the statements as a whole.

Evaluations of financial information through analysis of plausible relationships among data, used in risk assessment, as substantive evidence, and in the overall review at the end of the audit.

Audit work designed to detect material misstatements at the assertion level, comprising tests of detail and substantive analytical procedures, rather than relying on controls.

Procedures performed to evaluate whether controls operate effectively in preventing, or detecting and correcting, material misstatements at the assertion level.

The process designed by those charged with governance and management to provide reasonable assurance about the reliability of reporting, effectiveness of operations and compliance with laws and regulations.

The risk of intentional misstatement arising from fraudulent financial reporting or misappropriation of assets, which the auditor must assess and address regardless of past experience of honesty.

The assumption that the entity will continue in operation for the foreseeable future; the auditor assesses whether this basis is appropriate and whether material uncertainty is adequately disclosed.

A written statement from management confirming responsibilities and specific assertions made during the audit, obtained near completion as required evidence but never a substitute for other procedures.

The auditor's formal conclusion on whether the financial statements give a true and fair view, expressed as unmodified, qualified, adverse or a disclaimer depending on the nature of any issue.

An opinion that is qualified, adverse or a disclaimer, issued when the auditor concludes the statements are materially misstated or is unable to obtain sufficient appropriate evidence.

A description of the effect of a misstatement or possible misstatement that is not confined to specific elements, or represents a substantial proportion of the statements, or concerns disclosures fundamental to users.

Those matters most significant in the audit of the current period's financial statements, selected from matters communicated with those charged with governance and described in the auditor's report for listed entities.

An engagement in which a practitioner expresses a conclusion designed to enhance the confidence of intended users about the evaluation of a subject matter against suitable criteria.

An engagement where the practitioner performs procedures agreed with specified parties and reports factual findings, without expressing assurance or an opinion on the subject matter.

An engagement to investigate suspected fraud, misconduct or dispute evidence, gathering detailed facts for use in legal or disciplinary proceedings rather than expressing an opinion on financial statements.