Czech Statutory Auditor Exam key terms

The threshold above which a misstatement or omission could reasonably influence the economic decisions of users of financial statements. Auditors set it at overall and performance levels and document the benchmark and percentage applied.

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed overall materiality. It drives sample sizes and the scope of testing.

The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated. It is modelled as inherent risk times control risk times detection risk, and the auditor responds by adjusting the nature, timing and extent of procedures.

The susceptibility of an assertion to material misstatement before considering related controls. It is driven by the nature of the item, estimation uncertainty, complexity of transactions and susceptibility to fraud or management bias.

The risk that procedures performed by the auditor will not detect a material misstatement. Unlike inherent and control risk it is controlled by the auditor, who lowers it by increasing the extent or improving the design of substantive procedures.

An identified risk of material misstatement that, in the auditor's judgement, requires special audit consideration, for example non-routine or judgemental transactions, related-party dealings or significant estimates. Significant risks demand substantive procedures and are not left to controls testing alone.

Procedures designed to detect material misstatements at the assertion level, comprising tests of detail and substantive analytical procedures. They are mandatory for each material class of transactions, account balance and disclosure regardless of assessed control risk.

Applying procedures to less than 100 percent of items within a population so that each sampling unit has a chance of selection, enabling the auditor to draw conclusions about the whole population. Statistical and non-statistical approaches are both permitted.

The monetary amount of misstatement in a population that the auditor accepts without concluding the population is materially misstated. It is usually set at or below performance materiality and directly determines sample size.

The presumption that the entity will continue in operation for the foreseeable future without liquidation or ceasing trading. Management assesses it, and the auditor evaluates the assessment and the adequacy of related disclosures in the financial statements.

The overriding requirement that financial statements present faithfully the entity's financial position, performance and cash flows. Under Czech accounting law the entity must depart from statutory rules where applying them would prevent a true and fair view, and disclose the departure.

Recognition of revenues and expenses in the periods to which they relate, not when cash is received or paid. It underpins the matching of costs with revenues and requires accruals, deferrals and provisions.

A liability of uncertain timing or amount recognised when the entity has a present obligation from a past event, an outflow is probable and the amount can be reliably estimated. Czech GAAP recognises provisions under similar conditions, with specific rules for tax-deductible provisions.

A reduction in the carrying amount of an asset so that it does not exceed its recoverable amount. Under IFRS the recoverable amount is the higher of fair value less costs of disposal and value in use; reversal rules differ between asset classes.

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. IFRS 13 establishes a three-level hierarchy of observable and unobservable inputs and requires disclosure of valuation techniques.

The five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate it to the obligations and recognise revenue when or as each obligation is satisfied. Variable consideration and contract costs require specific treatment.

A single lessee model recognising a right-of-use asset and a lease liability at the present value of future payments, with exemptions for short-term and low-value leases. It replaces the former operating and finance lease split for lessees.

Combining the financial statements of a parent and its subsidiaries into a single set, eliminating intragroup balances and transactions and recognising non-controlling interests. Control, not shareholding percentage alone, determines whether an entity is consolidated.

The state of mind and appearance that allows the auditor to act with integrity, objectivity and professional scepticism, free from interests that could be seen to compromise judgement. It has both mental and apparent dimensions and covers financial, business, employment and personal relationships.

A threat arising when the auditor evaluates the results of previous judgements or services it, or its firm, provided, such as preparing accounting records later audited. Safeguards include removing the service or using separate engagement teams.

Services other than audit or audit-related work, such as tax advice, bookkeeping, valuation or internal audit outsourcing. Providing them to an audit client is restricted where they create threats that cannot be reduced to an acceptable level.

An objective evaluation of the significant judgements and conclusions of the engagement team before the report is issued, performed by a reviewer not part of the team. It is required for listed entity audits and other engagements where the firm's policies demand it.

The record of procedures performed, evidence obtained and conclusions reached, sufficient to enable an experienced auditor with no prior connection to the engagement to understand the work. It must be retained for the period set by law and professional standards.

Information used by the auditor to reach the conclusions on which the opinion is based. Its sufficiency and appropriateness depend on relevance, reliability, source and timeliness, with external independent evidence generally more persuasive than internal evidence.

Direct written responses from third parties, such as banks, customers or lawyers, verifying balances or conditions. External confirmations are strong evidence but the auditor must control the process and evaluate non-responses.

A body, separate from management, that oversees financial reporting, the audit process and the auditor's independence. Czech law requires certain entities of public interest to establish one, and it recommends the auditor for appointment by the general meeting.

The system by which entities are directed and controlled, covering the allocation of rights and responsibilities among shareholders, the board, management and other stakeholders. In Czech law the statutory body and supervisory board or their equivalents carry defined duties.

A standard protecting directors from liability for harm resulting from a business decision made in good faith, on an informed basis and in the company's interest. It permits risk-taking while penalising decisions taken with conflicting interests or without adequate information.

The body that manages the company's business and acts on its behalf, such as the board of directors of a joint-stock company or the managing director of a limited liability company. Members owe duties of care and loyalty.

A person or entity that is related to the reporting entity through control, joint control, significant influence, key management membership or close family ties. Transactions with such parties must be disclosed and are scrutinised for arm's-length terms.

The setting of prices for transactions between related parties. Czech rules require arm's-length prices supported by documentation, with methods such as comparable uncontrolled price, resale price, cost plus and profit split.

The tax expected to be payable or recoverable on temporary differences between the carrying amount of assets and liabilities and their tax base. Recognised in full under IFRS, subject to recoverability and initial recognition exceptions.

The assessment of whether a debtor is unable to pay debts as they fall due or is over-indebted, meaning liabilities exceed the value of assets. Czech insolvency proceedings can be initiated on either ground and the test affects going concern conclusions.

The application of accounting, auditing and investigative skills to legal disputes, including quantification of losses, fraud examination and asset tracing. Outputs must withstand scrutiny as evidence in court or arbitration proceedings.

The risk of intentional misstatement or misappropriation, arising from incentives and pressures, opportunities and rationalisation. Auditors must presume a risk of fraud in revenue recognition and remain alert to management override of controls.

An attitude of questioning and critical assessment of evidence, alert to possible misstatement due to error or fraud. It requires the auditor not to accept management explanations without corroboration and to challenge inconsistent evidence.

The process designed by those charged with governance and management to provide reasonable assurance about reliable reporting, effectiveness and efficiency of operations and compliance with laws. It comprises the control environment, risk assessment, control activities, information and communication and monitoring.

Procedures to evaluate the operating effectiveness of controls in preventing or detecting material misstatements. If controls are relied upon, tests of operating effectiveness are required, and deficiencies must be communicated to management and those charged with governance.

The use of data analysis techniques, such as full-population testing, visualisation and anomaly detection, to obtain audit evidence or improve risk assessment. Results must be validated, documented and reconciled to the general ledger before reliance.

Auditing of government bodies, state funds and public-interest entities against legality, economy, efficiency and effectiveness criteria in addition to financial reporting frameworks. Supreme audit institutions apply standards such as ISSAI alongside national rules.