AU-M flashcards
AU-M · Build recall with a focused review session.
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 financial statements are free from material misstatement, acknowledging inherent limitations of an audit.
- Audit risk model
- A formula: Audit Risk = Inherent Risk × Control Risk × Detection Risk. Detection risk is the only component the auditor can control directly.
- Professional skepticism
- An attitude of questioning mind and critical assessment of audit evidence, including questioning contradictory evidence and the reliability of documents.
- Materiality
- The threshold above which misstatements, individually or in aggregate, could influence the economic decisions of users of the financial statements.
- Performance materiality
- An amount set lower than overall materiality to reduce to an appropriately low level the probability that aggregate uncorrected and undetected misstatements exceed overall materiality.
- Significant risk
- An identified risk of material misstatement that, in the auditor's judgment, requires special audit consideration due to its nature, complexity, or fraud potential.
- Risk assessment procedures
- Procedures performed to obtain an understanding of the entity and its environment, including inquiries, analytical procedures, observation, and inspection.
- Audit strategy
- The overall approach to the audit that sets the scope, timing, and direction, guiding the development of the detailed audit plan.
- COSO components
- Five components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring activities.
- Test of controls
- An audit procedure to evaluate the operating effectiveness of controls in preventing or detecting material misstatements; required when relying on controls.
- Material weakness
- A deficiency or combination of deficiencies in internal control such that there is a reasonable possibility of material misstatement not being prevented or detected timely.
- Segregation of duties
- A control activity that separates authorization, custody, recording, and reconciliation of transactions to reduce the risk of error or fraud.
- Sufficiency of evidence
- The measure of the quantity of audit evidence; greater quantity is needed when risk of material misstatement is higher or evidence quality is lower.
- Appropriateness of evidence
- The measure of the quality of audit evidence, including its relevance and reliability in providing support for the auditor's conclusions.
- External confirmation
- Audit evidence obtained as a direct written response from a third party to the auditor, used to verify account balances or transactions.
- Substantive procedures
- Audit procedures designed to detect material misstatements at the assertion level, including tests of details and substantive analytical procedures.
- Sampling risk
- The risk that the auditor's conclusion based on a sample may differ from the conclusion if the entire population were subjected to the same procedure.
- Non-sampling risk
- The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling, such as inappropriate procedures or misinterpretation of evidence.
- Attribute sampling
- A statistical sampling method used in tests of controls to estimate the rate of deviation from a prescribed control in a population.
- Tolerable deviation rate
- The maximum rate of deviation from a control that the auditor is willing to accept and still rely on the control as effective.
- Qualified opinion
- An auditor's opinion that misstatements are material but not pervasive, or that sufficient appropriate evidence was not obtained but possible effects are material but not pervasive.
- Adverse opinion
- An auditor's opinion that misstatements are both material and pervasive to the financial statements, meaning the statements are not fairly presented.
- Disclaimer of opinion
- An auditor's opinion that sufficient appropriate evidence could not be obtained and the possible effects are both material and pervasive.
- Key audit matters
- Matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period.
- Independence of mind
- The state of mind that enables the auditor to act with integrity, objectivity, and professional skepticism, free from bias and conflicts of interest.
- Independence in appearance
- The avoidance of facts and circumstances that a reasonable and informed third party would perceive as compromising the auditor's independence.
- Self-review threat
- A threat to independence that arises when the auditor evaluates the results of previous services or judgments performed by the same firm.
- Contingent fee
- A fee calculated on a predetermined basis relating to the outcome of a transaction; prohibited for audit engagements due to self-interest threat.
- IT general controls
- Controls over the IT environment that support the reliable functioning of application controls, such as access security, change management, and backup procedures.
- Application controls
- Controls specific to a particular computer application, including input validation, processing controls, and output controls, to ensure complete and accurate processing.
- CAATs
- Computer-assisted audit techniques: tools and techniques used by auditors to extract, analyze, and test data from client systems for audit purposes.
- Service auditor's report
- A report from an auditor of a service organization, such as a SOC 1 report, providing evidence about controls at the service organization relevant to user entities.