Czech Statutory Auditor Exam flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk. Detection risk is the only component the auditor controls directly through the nature, timing and extent of audit procedures.

Performance materiality

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

Qualified opinion

An auditor's opinion stating that, except for the effects of the matter described, the financial statements give a true and fair view. Used when misstatements are material but not pervasive.

Disclaimer of opinion

Issued when the auditor is unable to obtain sufficient appropriate evidence and the possible effects are both material and pervasive, so no opinion on the financial statements can be expressed.

Key audit matters

Matters that, in the auditor's professional judgement, were of most significance in the audit of the current period. Required to be communicated for audits of complete sets of general purpose financial statements of listed entities.

Independence of mind

The state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgement, allowing the auditor to act with integrity and objectivity.

Self-review threat

A threat to independence arising when the auditor evaluates the results of previous services, such as preparing the financial statements or designing the accounting system subsequently audited.

Contingent fee prohibition

Audit fees calculated on a contingency basis, such as a percentage of the client's profit or a fee dependent on the audit opinion, are prohibited because they create a self-interest threat.

Due managerial care

The standard under Czech law requiring members of company bodies to act with the care of a prudent manager, with the necessary knowledge and in the company's interest, otherwise facing liability.

Audit committee

A body of a public interest entity that monitors the financial reporting process, the effectiveness of internal control and internal audit, and recommends the statutory auditor to the general meeting.

Supervisory board

In a Czech joint-stock company with a dualistic system, a body that supervises the board of directors' activity and reviews the financial statements and the profit distribution proposal.

Arm's length principle

The principle that transactions between related parties must be priced as if the parties were independent. Czech law requires transfer pricing documentation and comparability analysis for such transactions.

Deferred tax liability

An amount of income tax payable in future periods in respect of taxable temporary differences, recognised under IAS 12 using the liability method at the tax rate expected to apply.

Tax loss carryforward

A tax loss may generally be deducted from the tax base in the five tax periods following the period in which the loss was assessed, subject to the conditions of the Income Taxes Act.

NPV decision rule

Accept a project if net present value is positive; reject if negative. NPV equals the present value of future cash flows discounted at the cost of capital minus the initial investment.

WACC

The weighted average cost of capital, calculated as the proportion of equity times the cost of equity plus the proportion of debt times the cost of debt after tax.

COSO components

The five components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring activities. They apply to all entity sizes.

Segregation of duties

A control that separates incompatible functions such as authorisation, custody of assets, recording and reconciliation, so that no single person can both perpetrate and conceal an error or fraud.

Benford's law

A digit-distribution expectation in which the leading digit 1 occurs about 30% of the time. Deviations in data analytics are a screening signal, not by themselves evidence of fraud.

CAAT

Computer-assisted audit techniques, such as data extraction, re-performance, duplicate testing and gap detection, used to test full populations rather than samples.

IT general controls

Controls over access management, change management, IT operations and program development that support the reliable functioning of automated application controls on which the audit may rely.

Fraud triangle

A model describing three conditions associated with fraud: pressure or incentive, opportunity, and rationalisation. Auditors use it to design fraud risk assessment procedures.

Insolvency test

Under the Czech Insolvency Act, a debtor is insolvent if it has multiple creditors and is unable to pay debts for more than 30 days, or its liabilities exceed the value of its assets.

Reorganisation threshold

Czech insolvency law permits reorganisation for a debtor with annual turnover above CZK 50 million or more than 50 employees, subject to court approval of a reorganisation plan.

Avoidance action

An action by the insolvency administrator to challenge transactions that diminished the debtor's estate within statutory look-back periods, such as gratuitous acts within three years.

ISSAI framework

International Standards of Supreme Audit Institutions issued by INTOSAI, comprising fundamental principles, organisational requirements and audit standards for public sector auditors.

Public procurement principles

Under Act No. 134/2016 Coll., the contracting authority must follow transparency, equal treatment, non-discrimination and proportionality in awarding public contracts.

Subsidy audit

Verification that a grant was used for the approved purpose and within the grant agreement, including eligibility of costs; findings may lead to clawback of the subsidy.

IAS 16 depreciation start

Depreciation of an item of property, plant and equipment begins when the asset is available for use, that is, when it is in the location and condition necessary for its intended operation.

IFRS 15 five-step model

Identify the contract, identify performance obligations, determine the transaction price, allocate it to the obligations, and recognise revenue when each obligation is satisfied.

Going concern material uncertainty

A condition where events or conditions cast significant doubt on the entity's ability to continue. The auditor's report must include a separate section describing the uncertainty when adequately disclosed.

Journal entry testing

A fraud risk procedure under ISA 240 that extracts and scores journal entries by criteria such as unusual accounts, round amounts, off-hours posting or unusual users to detect management override.