CPA AUD flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Audit risk model
- AR = IR × CR × DR. Detection risk is set by the auditor and is inversely related to the assessed risks of material misstatement (IR × CR).
- Performance materiality
- An amount set lower than overall materiality to reduce the probability that uncorrected and undetected misstatements exceed overall materiality; often 50–75% of overall materiality.
- Significant risk
- An identified risk of material misstatement that is close to the upper end of the inherent risk spectrum, including non-routine transactions, estimates, and fraud risks.
- Detection risk
- The risk that the auditor's procedures will not detect a misstatement that exists and is material; controlled by the nature, timing, and extent of substantive procedures.
- Control risk
- The risk that a misstatement will not be prevented or detected on a timely basis by the entity's internal control; assessed by the auditor based on understanding of controls.
- Inherent risk
- The susceptibility of an assertion to a misstatement before considering any related controls; assessed based on the nature of the account and the entity's environment.
- Analytical procedures timing
- Required during risk assessment and in the final review; optional during substantive testing. They compare recorded amounts to expectations developed from plausible relationships.
- Fraud risk presumption
- The auditor presumes a risk of fraud in revenue recognition and must evaluate management override of controls in every audit.
- Sufficient appropriate evidence
- Sufficiency is the quantity of evidence; appropriateness is relevance and reliability. External evidence is generally more reliable than internal evidence.
- External confirmation
- Direct written response from a third party to the auditor. Positive confirmations request a response in all cases; required for receivables unless ineffective.
- Sampling risk
- The risk that the auditor's conclusion based on a sample differs from the conclusion that would be reached by testing the entire population.
- Tolerable deviation rate
- The maximum rate of deviation from a prescribed control that the auditor is willing to accept without altering the assessed level of control risk.
- Tolerable misstatement
- The maximum monetary misstatement in an account balance or class of transactions that the auditor is willing to accept and still conclude the account is fairly stated.
- Subsequent events period
- The period from the balance sheet date through the date of the auditor's report; the auditor has no obligation to perform procedures after the report date.
- Going concern evaluation
- The auditor evaluates management's plans when substantial doubt exists; if doubt is not alleviated, an emphasis-of-matter paragraph is added to the report.
- Related party transactions
- Transactions between the entity and parties with which it has a relationship; the auditor must obtain an understanding and evaluate identification, accounting, and disclosure.
- Unmodified opinion
- An opinion stating the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in accordance with the framework.
- Qualified opinion
- Issued when a misstatement or scope limitation is material but not pervasive; the opinion paragraph states 'except for' the matter.
- Adverse opinion
- Issued when a misstatement is both material and pervasive; the financial statements are not presented fairly in accordance with the framework.
- Disclaimer of opinion
- Issued when a scope limitation is both material and pervasive; the auditor does not express an opinion on the financial statements.
- Integrated audit
- For public companies under PCAOB standards, the auditor opines on both the financial statements and internal control over financial reporting.
- Emphasis-of-matter paragraph
- A paragraph included in the auditor's report that refers to a matter appropriately presented in the financial statements that is fundamental to users' understanding.
- Report date
- The date the auditor has obtained sufficient appropriate evidence to support the opinion; it should not be earlier than that date.
- Management representation letter
- A written letter from management confirming representations made during the audit; required for all audits and dated as of the date of the auditor's report.
- Those charged with governance
- The person(s) responsible for overseeing the strategic direction and accountability of the entity; the auditor communicates significant findings to them.
- Audit documentation
- The record of procedures performed, evidence obtained, and conclusions reached; must enable an experienced auditor with no prior connection to understand the work.
- Predecessor auditor communication
- The successor auditor should communicate with the predecessor before accepting the engagement and obtain client permission to do so.
- Compilation engagement
- A SSARS engagement in which the accountant prepares financial statements but provides no assurance; the report states no opinion or assurance is expressed.
- Review engagement (SSARS)
- Provides limited assurance through inquiry and analytical procedures; the report states nothing came to the accountant's attention indicating the statements are not in accordance with the framework.
- Agreed-upon procedures
- An attestation engagement providing no assurance; the accountant reports findings only to specified parties based on procedures agreed with them.
- Engagement quality control review
- An objective evaluation of the significant judgments made and conclusions reached by the engagement team before the report is issued; required for public company audits.
- Peer review
- A periodic external review of a firm's system of quality control; the report may be unmodified, modified, or adverse depending on findings.