CA ANZ Assurance key terms

A high but not absolute level of confidence that an opinion is correct, acknowledging that inherent limitations such as sampling and judgement mean some material misstatement may remain undetected.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated, arising from inherent risk, control risk and detection risk together.

The risk that audit procedures fail to detect a material misstatement that exists, which the auditor controls through the nature, timing and extent of testing.

The threshold above which omissions or misstatements could reasonably influence the economic decisions of users taken on the basis of the financial report.

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

The avoidance of circumstances that a reasonable and informed third party would perceive as compromising objectivity, even where actual judgement remains unbiased.

The state of mind enabling an auditor to act with integrity, objectivity and professional scepticism, free from influences that compromise professional judgement.

A threat to independence arising when an auditor has a financial or other interest that could improperly influence judgement, such as a fee dependency on one client.

An action or control that eliminates a threat to independence or reduces it to an acceptable level, such as rotating engagement partners or independent quality review.

An attitude of questioning alertness to conditions indicating possible misstatement, including a critical assessment of evidence rather than automatic acceptance.

The exposure of an auditor to claims by parties who relied on audited statements, generally limited by the doctrine of privity and the need to show a duty of care.

A policy that protects an audit firm against claims for negligence or breach of professional duty arising from assurance engagements.

The pre-engagement evaluation of a prospective or existing client's integrity, the firm's competence and resources, and ethical compliance before accepting or retaining the engagement.

A written agreement setting out the agreed scope, responsibilities of auditor and management, the applicable reporting framework and the basis of fees for the engagement.

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

The auditor's knowledge of the client's industry, regulatory, economic and internal factors, used to identify and assess risks of material misstatement.

The processes designed and implemented by those charged with governance and management to provide reasonable assurance about reliable reporting, effectiveness and efficiency of operations and compliance.

The set of governance and management attitudes, awareness and actions concerning internal control, including integrity, ethical values and commitment to competence.

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

The assessed risk that the financial report contains a material misstatement before audit procedures are performed, combining inherent and control risk at assertion level.

Representations by management about recognition, measurement, presentation and disclosure of items in the financial report, used by auditors to design procedures addressing each relevant assertion.

Information used by the auditor to reach conclusions on which the audit opinion is based, evaluated for sufficiency and appropriateness.

Direct written response from a third party to the auditor, such as a bank or debtor balance confirmation, providing more reliable evidence than internally generated documentation.

Tests of details and substantive analytical procedures designed to detect material misstatements at the assertion level, irrespective of assessed control risk.

Evaluations of financial information through analysis of plausible relationships among financial and non-financial data, used in risk assessment, as substantive tests and in final review.

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

Application of audit procedures to less than 100 per cent of items within a population so each sampling unit has a chance of selection, enabling conclusions about the whole population.

The use of software to analyse full populations of client data to identify anomalies, patterns and risks, often supplementing or replacing traditional sampling techniques.

A written statement from management confirming responsibilities and specific assertions, obtained near the report date as required evidence.

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

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

An audit opinion that is qualified, adverse or a disclaimer, issued when misstatements are material, or when sufficient appropriate evidence cannot be obtained.

The opinion expressed when the auditor concludes the financial report gives a true and fair view, or is presented fairly, in all material respects in accordance with the framework.

Those matters of most significance in the audit of listed entities, selected from communications with those charged with governance and described in the auditor's report.

The person or persons responsible for overseeing the strategic direction and accountability of the entity, such as the board or audit committee, with whom the auditor communicates.

A person or entity connected to the reporting entity such that transactions may not be at arm's length, requiring specific identification and disclosure procedures.

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

A lower level of assurance, usually expressed negatively as nothing having come to attention, typical of review engagements and sustainability or greenhouse gas reports.