SOEL Auditor Exam flashcards
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33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Reasonable assurance
- A high but not absolute level of assurance that the financial statements are free from material misstatement; it acknowledges inherent audit limitations.
- Audit risk model
- AR = IR × CR × DR. Detection risk is the only component the auditor controls directly through the nature, timing, and extent of procedures.
- Materiality
- The amount of misstatement that could reasonably influence the economic decisions of users of the financial statements, based on professional judgment.
- Three-party relationship
- The auditor, the responsible party (management/governance), and intended users; the responsible party is distinct from the auditor's client.
- Functional reporting line
- Internal audit's reporting relationship to the audit committee for independence matters, distinct from its administrative reporting to management.
- Inherent limitations of audit
- Judgment, sampling, fraud concealment, and persuasive rather than conclusive evidence limit what an audit can guarantee.
- Audit strategy
- The overall plan setting scope, timing, direction, and resources of the engagement; it precedes and informs the detailed audit plan.
- Significant risk
- A risk close to the upper end of the risk spectrum or requiring special audit consideration, often involving significant judgment or related-party transactions.
- Performance materiality
- An amount set below overall materiality to reduce the probability that uncorrected and undetected misstatements exceed materiality.
- Fraud revenue presumption
- The auditor must presume risks of fraud in revenue recognition unless rebutted, and must document the rebuttal rationale.
- Risk assessment procedures
- Inquiry, analytical procedures, and observation/inspection used to understand the entity and its environment; not sufficient alone as substantive evidence.
- Analytical procedures timing
- Required at the planning stage and during the overall review at the conclusion of the audit, and optional as substantive procedures.
- Sufficiency and appropriateness
- Sufficiency is the quantity of evidence; appropriateness is its relevance and reliability. Both are required to support the conclusion.
- Reliability hierarchy
- External evidence is more reliable than internal; originals more than copies; auditor-obtained more than client-provided evidence.
- Inquiry limitation
- Inquiry alone is never sufficient evidence because it is the least reliable procedure and must be corroborated.
- Tests of controls
- Procedures that evaluate the operating effectiveness of controls, supporting the assessed level of control risk.
- Substantive procedures
- Procedures designed to detect material misstatements at the assertion level; always required for material classes of transactions and balances.
- Sampling risk
- The risk that the auditor's conclusion based on a sample differs from the conclusion that would be reached from the entire population.
- Cutoff testing
- Procedures verifying that transactions are recorded in the correct accounting period, typically around the reporting date.
- Qualified opinion
- Issued when a misstatement or scope limitation is material but not pervasive; the opinion is modified with a basis paragraph.
- Adverse opinion
- Issued when misstatements are both material and pervasive, meaning the financial statements are not fairly presented.
- Disclaimer of opinion
- Issued when a scope limitation is both material and pervasive, preventing the auditor from obtaining sufficient appropriate evidence.
- Key audit matters
- Matters of most significance in the audit, selected from those communicated to those charged with governance, described in the auditor's report.
- Emphasis of Matter paragraph
- A paragraph drawing attention to a matter fundamental to users' understanding that does not modify the opinion.
- Follow-up on findings
- Tracking management's remediation of prior-year findings and assessing whether the deficiency persists.
- NOCLAR
- Non-compliance with laws and regulations; the auditor must understand the act, evaluate its effect, and respond appropriately.
- Engagement quality review
- An objective evaluation of significant judgments and conclusions by a reviewer independent of the engagement team, required for listed entities.
- Professional skepticism
- An attitude of questioning and critical assessment of evidence, required throughout the engagement.
- Documentation sufficiency
- Working papers must let an experienced auditor with no prior connection understand the procedures, results, and conclusions.
- Final audit file assembly
- The process of completing the audit file on a timely basis, normally within 60 days after the report date.
- Post-assembly additions
- After the file is final, no deletions are allowed; additions must document the reason, date, and person responsible.
- Independence of mind
- The auditor's state of mind enabling an unbiased conclusion, distinct from independence in appearance perceived by third parties.
- Five threats to independence
- Self-interest, self-review, advocacy, familiarity, and intimidation; safeguards must reduce them to an acceptable level.