ICAB PL Audit & Assurance key terms

A high but not absolute level of confidence that the auditor obtains so that the financial statements are free from material misstatement, allowing the auditor to give an opinion.

The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated. It combines inherent risk, control risk and detection risk.

The susceptibility of an assertion to material misstatement before considering any related internal controls. It reflects the nature of the business, transactions and estimates.

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

The risk that the procedures performed by the auditor fail to detect a material misstatement. It is managed by designing effective substantive tests and adjusting the nature, timing and extent of work.

The amount or type of misstatement that could reasonably influence the economic decisions of users taken on the basis of the financial statements. It guides planning and evaluation of errors.

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

The overall approach the auditor sets out for the engagement, covering the scope, timing and direction of the audit and guiding the development of the more detailed audit plan.

The process of identifying and evaluating risks of material misstatement at the financial statement and assertion levels, so that audit procedures can be directed to where they are most needed.

The process designed by those charged with governance and management to provide reasonable assurance about achieving objectives relating to reliable reporting, effective operations and compliance with laws.

A control that separates incompatible tasks, such as authorising a transaction, recording it and holding custody of the related asset, so that no single person can both commit and conceal an error or fraud.

A procedure in which the auditor traces one or a few transactions through the accounting system from initiation to reporting, to confirm understanding of the controls and the flow of information.

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

Audit procedures designed to detect material misstatements at the assertion level, comprising tests of details and substantive analytical procedures. They are required regardless of assessed control risk.

Evaluations of financial information by studying plausible relationships among both financial and non-financial data, used in risk assessment, as substantive tests and in the final review stage.

The information used by the auditor in arriving at the conclusions on which the audit opinion is based. It must be sufficient in quantity and appropriate in relevance and reliability.

The two dimensions of audit evidence: sufficiency is the measure of quantity, while appropriateness concerns its relevance and reliability in supporting the auditor's conclusions.

Audit evidence obtained as a direct written response to the auditor from a third party, such as a bank or customer, generally providing more reliable evidence than internally generated documents.

Applying audit procedures to fewer than all items in a population so that each sampling unit has a chance of selection, enabling the auditor to draw conclusions about the whole population.

The risk that the auditor's conclusion based on a sample differs from the conclusion reached if the whole population were tested in the same way.

The assumption that an entity will continue in operation for the foreseeable future. Auditors assess whether this basis remains appropriate and whether disclosures are adequate.

Events occurring between the date of the financial statements and the date of the auditor's report, and facts discovered after that date, that may require adjustment or disclosure.

An audit opinion that is qualified, adverse or a disclaimer, issued when the auditor concludes the financial statements are materially misstated or sufficient evidence cannot be obtained.

The opinion expressed when the auditor concludes that the financial statements give a true and fair view, or are presented fairly, in all material respects in accordance with the applicable framework.

A term describing misstatements or possible effects that are not confined to specific elements of the financial statements, or that represent a substantial proportion of them, affecting the type of modified opinion.

The date the auditor signs the report, which must be no earlier than the date sufficient appropriate evidence has been obtained, including evidence of management's approval of the statements.

A written statement by management confirming certain matters, such as responsibility for the financial statements and completeness of information provided, which the auditor obtains as supporting evidence.

Misstatements identified during the audit that management has not corrected. The auditor evaluates their aggregate effect, individually and collectively, against materiality before forming the opinion.

A written agreement between the auditor and the client that sets out the agreed terms of the engagement, including the objective, scope, responsibilities and expected form of reports.

A state of mind and appearance that enables the auditor to act with integrity and exercise objectivity, free from relationships or interests that could compromise professional judgement.

A fundamental ethical principle requiring the auditor not to compromise professional or business judgement because of bias, conflict of interest or undue influence of others.

An attitude of questioning and alertness to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

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

The firm's system of policies and procedures designed to provide reasonable assurance that the firm and its personnel comply with standards and ethical requirements and issue appropriate reports.

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

An intentional act by one or more individuals involving deception to obtain an unjust or illegal advantage. Auditors consider fraud risks but do not guarantee detection of all fraud.

The detailed description of the nature, timing and extent of audit procedures to be performed, developed from the audit strategy and updated as the audit progresses.