ICAB PL Audit & Assurance 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 financial statements are free from material misstatement, limited by sampling risk, estimation uncertainty and the persuasive nature of evidence.

Audit risk model

Audit risk equals inherent risk times control risk times detection risk. Detection risk is controlled by the auditor and varies inversely with the assessed risks of material misstatement.

Performance materiality

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

Professional scepticism

An attitude of questioning and alertness to conditions suggesting possible misstatement, including fraud, regardless of the auditor's past experience of management's honesty and integrity.

Limited assurance engagement

A review engagement in which the practitioner expresses a negative-form conclusion that nothing has come to their attention suggesting the subject matter is materially misstated.

Three-party relationship

The structure underlying an assurance engagement: the practitioner, the responsible party such as management, and the intended users who rely on the assurance report.

Significant risk

An identified risk of material misstatement assessed close to the upper end of the spectrum, requiring substantive procedures and special audit consideration including evaluation of controls.

Audit strategy

A documented plan setting the scope, reporting objectives, timing and direction of the audit, guiding development of the more detailed audit plan.

Analytical procedures required

Analytical procedures are mandatory during risk assessment and in the overall review at completion, though they may also be used voluntarily as substantive procedures.

Client acceptance procedures

Pre-engagement procedures evaluating management integrity, the engagement team's competence and resources, and the firm's ability to comply with ethical requirements.

Inherent risk factors

Characteristics such as complexity, subjectivity, change, uncertainty and susceptibility to management bias that affect the likelihood of material misstatement before considering controls.

Assertion-level risk

A risk of material misstatement assessed for a class of transactions, account balance or disclosure, considering the relevant assertions such as existence, completeness and valuation.

Direction of the audit

The planning decision about which areas receive most attention, driven by assessed risks, materiality and the auditor's understanding of the entity.

Five components of internal control

Control environment, the entity's risk assessment process, information system and communication, control activities, and monitoring of controls, as identified in ISA 315.

Sufficient appropriate evidence

Evidence that is sufficient in quantity and appropriate in relevance and reliability to support the auditor's opinion and reduce audit risk to an acceptably low level.

Tests of controls

Procedures performed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.

Control deficiency

A control designed, implemented or operated so that it cannot prevent, or detect and correct, misstatements on a timely basis, or a missing control.

Significant deficiency

A control deficiency less severe than a material weakness but important enough to merit attention by those charged with governance.

External confirmation

Direct written response from a third party to the auditor, providing reliable evidence about assertions such as existence of receivables or bank balances.

Inquiry alone insufficient

Inquiry of management and others is never by itself sufficient to obtain appropriate audit evidence or to test the operating effectiveness of a control.

Uncorrected misstatements

Misstatements identified during the audit that management has not corrected, accumulated and evaluated individually and in aggregate against materiality.

Qualified opinion

An opinion issued when misstatements or a scope limitation are material but not pervasive, expressed as except for the effects of the matter described.

Adverse opinion

An opinion that the financial statements are materially misstated, used when the effects of misstatements are both material and pervasive to the financial statements.

Disclaimer of opinion

An opinion issued when the auditor cannot obtain sufficient appropriate evidence and the possible effects are both material and pervasive, so no opinion is expressed.

Key audit matters

Matters of most significance in the audit of the current period, selected from those communicated with those charged with governance, required for listed entity audits.

Report date

The date the auditor signs the report, which cannot be earlier than when sufficient appropriate evidence, including approval of the financial statements, has been obtained.

Going concern material uncertainty

A separate section in the auditor's report when events or conditions cast significant doubt on the entity's ability to continue, adequately disclosed by management.

Fundamental principles

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour, which all professional accountants must comply with.

Self-review threat

A threat arising when the firm evaluates its own prior work or judgements, such as auditing bookkeeping or valuations it prepared for the client.

ISQM 1

The standard requiring firms to design and implement a system of quality management addressing eight components, including governance, ethical requirements, engagement performance and monitoring.

Engagement quality review

An objective evaluation of the significant judgements and conclusions of the engagement team, required for listed entity audits under ISQM 2 and performed before the report is dated.

Documentation assembly

The audit file must be assembled within 60 days of the report date, and documentation must let an experienced auditor understand the work, evidence and conclusions.