CPA Australia Advanced Audit and Assurance key terms

The risk that the auditor expresses an inappropriate opinion when the financial report is materially misstated, made up of inherent risk, control risk and detection risk combined.

The susceptibility of an assertion to material misstatement before considering any related internal controls, driven by the nature of the item, estimates, complexity or fraud incentives.

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

The risk that procedures performed by the auditor will not detect a misstatement that exists, and which the auditor manages through the nature, timing and extent of audit procedures.

The amount or threshold below which misstatements, individually or in aggregate, would not reasonably influence the economic decisions of users taken on the basis of the financial report.

An amount set lower than overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed materiality for the financial report.

An identified risk of material misstatement that, in the auditor's judgement, requires special audit consideration because of its nature, the likelihood of misstatement or its relationship to other risks.

The representations by management, explicit or otherwise, embodied in the financial report, about recognition, measurement, presentation and disclosure, used by the auditor to consider potential misstatements.

Evidence that is both adequate in quantity and relevant and reliable in quality to support the audit opinion, judged by its source, nature and the circumstances of its obtainment.

Audit evidence obtained as a direct written response from a third party to the auditor, in paper or electronic form, about balances, transactions or other matters.

Procedures designed to evaluate the operating effectiveness of controls 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, and required regardless of assessed control risk.

Evaluations of financial information through analysis of plausible relationships among both financial and non-financial data, used in risk assessment, as substantive procedures and in the overall review.

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

The risk that the auditor's conclusion based on a sample may differ from the conclusion reached if the entire population were subjected to the same procedure.

The risk of material misstatement arising from fraudulent financial reporting or misappropriation of assets, which the auditor must assess and respond to with heightened professional scepticism.

An attitude of questioning mind, being alert to conditions indicating possible misstatement due to error or fraud, and critically evaluating evidence and management representations.

The application of relevant training, knowledge and experience within the context of auditing standards to make informed decisions about the courses of action appropriate in the circumstances.

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

An objective evaluation of the significant judgements made and conclusions reached by the engagement team, performed for listed entities and other engagements where required, before the report is issued.

Independence of mind and appearance that enables the auditor to act with integrity, objectivity and scepticism, free from relationships or interests that a reasonable third party would see as compromising.

A circumstance such as self-interest, self-review, advocacy, familiarity or intimidation that may compromise objectivity, requiring evaluation and safeguards or elimination of the relationship.

A committee of the governing body, typically of non-executive directors, that oversees financial reporting, internal control, risk management and the relationship with and independence of external auditors.

The person or persons with responsibility for overseeing the strategic direction of the entity and its accountability obligations, including oversight of the financial reporting process.

A written statement by management confirming that it has fulfilled its responsibilities and that it has provided the auditor with all relevant information and access, required as audit evidence.

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

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

A paragraph in the auditor's report referring to a matter appropriately presented or disclosed in the financial report that is fundamental to users' understanding, without modifying the opinion.

The assumption that the entity will continue in operation for the foreseeable future, which the auditor must evaluate for material uncertainty and adequacy of related disclosures.

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

An audit of financial statements that include the financial information of more than one component, requiring the group engagement partner to direct, supervise and evaluate component auditors' work.

An auditor who performs work on the financial information of a component for purposes of the group audit, and whose work the group engagement team must evaluate and document.

A transfer of resources, services or obligations between the entity and a related party, regardless of whether a price is charged, requiring identification and disclosure assessment by the auditor.

The process designed and implemented by those charged with governance and management to provide reasonable assurance about the reliability of reporting, effectiveness of operations and compliance with laws.

A deficiency or combination of deficiencies in internal control that, in the auditor's professional judgement, is of sufficient importance to merit the attention of those charged with governance.

The firm's system of policies and procedures addressing leadership, ethical requirements, acceptance and continuance, human resources, engagement performance and monitoring to support consistent audit quality.

An assurance engagement providing limited assurance, primarily through inquiry and analytical procedures, that nothing has come to the reviewer's attention indicating the information is materially misstated.