ICAB CL Assurance flashcards

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

Audit risk model

Audit risk equals inherent risk times control risk times detection risk. Detection risk is controlled by the auditor through the nature, timing, and extent of substantive procedures; the other two risks are assessed from the entity.

Materiality

The amount below which misstatements would not influence the economic decisions of users taken on the basis of the financial statements. It is a matter of professional judgement, often benchmarked to profit, revenue, or total assets.

Performance materiality

An amount set lower than materiality 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.

Sufficient appropriate evidence

Sufficiency is the measure of quantity of audit evidence; appropriateness is the measure of its quality, meaning relevance and reliability. Both dimensions together support the audit opinion.

Detection risk

The risk that procedures performed to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material individually or when aggregated with other misstatements.

Professional scepticism

An attitude of questioning and alertness to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of evidence rather than automatic acceptance of management representations.

Tests of controls

Procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements. They support a reduced assessed risk of material misstatement when evidence covers the period of reliance.

Substantive procedures

Procedures designed to detect material misstatements at the assertion level, comprising tests of details of classes of transactions, account balances, disclosures, and substantive analytical procedures.

Sampling risk

The risk that the auditor's conclusion based on a sample may differ from the conclusion that would be reached if the whole population were tested with the same audit procedure.

Non-sampling risk

The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk, such as using inappropriate procedures, misinterpreting evidence, or failing to recognise a misstatement.

Unmodified opinion

The opinion expressed when the auditor concludes the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework, giving a true and fair view.

Qualified opinion

The opinion expressed when the auditor, having obtained sufficient appropriate evidence, concludes misstatements are material but not pervasive, or cannot obtain evidence on a matter that is material but not pervasive.

Adverse opinion

The opinion expressed when the auditor concludes misstatements are both material and pervasive to the financial statements, meaning the statements as a whole are misleading.

Disclaimer of opinion

The opinion expressed when the auditor is unable to obtain sufficient appropriate evidence and concludes the possible effects of undetected misstatements could be both material and pervasive.

Key audit matters

Matters that, in the auditor's professional judgement, were of most significance in the audit of the current period's financial statements, selected from matters communicated with those charged with governance.

Subsequent events

Events occurring between the reporting date and the date the financial statements are authorised for issue. Adjusting events provide evidence of conditions existing at the reporting date; non-adjusting events require disclosure if material.

Going concern

The assumption the entity will continue in operation for the foreseeable future. The auditor evaluates management's assessment and considers whether a material uncertainty exists requiring disclosure.

Audit documentation

The record of procedures performed, relevant audit evidence obtained, and conclusions reached. It must be sufficient to enable an experienced auditor with no prior connection to the engagement to understand the work.

Assertions

Representations by management about the recognition, measurement, presentation, and disclosure of items in the financial statements, classified into classes of transactions, account balances, and presentation and disclosure.

Control environment

The set of standards, processes, and structures that provide the basis for carrying out internal control across the entity, including governance, integrity, ethical values, and organisational structure.

Fundamental principles

The five principles all professional accountants must comply with: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour, as set out in the IFAC Code of Ethics.

Independence of mind

The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgement, allowing an individual to act with integrity and exercise objectivity and professional scepticism.

Independence in appearance

The avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude that a firm's or engagement team member's integrity, objectivity, or scepticism has been compromised.

Self-review threat

A threat arising when a firm or engagement team member relies on work previously performed by the firm itself, or by another member of the firm, that must now be evaluated in forming the audit conclusion.

Self-interest threat

A threat arising from financial or other interests of the firm or a team member, such as holding a financial interest in the client or having a fee dependency, which may inappropriately influence judgement.

Familiarity threat

A threat arising from a long or close relationship with a client, such as a senior team member having served the client for many years, which may cause the auditor to become too sympathetic to the client's interests.

Intimidation threat

A threat arising when a professional accountant is deterred from acting objectively by actual or perceived pressures, including attempts to exercise undue influence over the accountant's judgement or decisions.

Advocacy threat

A threat arising when a firm or team member promotes a client's position or defends a client's interests to the point that objectivity is compromised, such as acting as an advocate in a dispute.

Confidentiality principle

A principle requiring professional accountants to respect the confidentiality of information acquired through professional relationships and not disclose it without proper authority, unless there is a legal or professional right or duty to disclose.

ISQM 1

The International Standard on Quality Management requiring firms to design, implement, and operate a system of quality management addressing eight components, including risk assessment, governance, ethical requirements, engagement performance, and monitoring.

Engagement quality review

An objective evaluation of the significant judgements and conclusions of the engagement team, performed before the report is issued, required for listed entity audits and other engagements the firm identifies as high risk.

ISAE 3000

The International Standard on Assurance Engagements addressing assurance engagements other than audits or reviews of historical financial information, covering both reasonable and limited assurance engagements.

Reasonable and informed third party

The IESBA test used to evaluate threats: whether a reasonable and informed third party, having knowledge of all relevant information including safeguards applied, would conclude the threat is at an acceptable level.