HKICPA QP Module 5 key terms

The system of rules, practices and processes by which a company is directed and controlled, balancing the interests of shareholders, management, creditors and other stakeholders.

The conflict that arises when managers, acting as agents for shareholders, pursue their own interests rather than those of the owners they are meant to serve.

A subcommittee of the board, composed mainly of independent non-executive directors, that oversees financial reporting, internal control and the relationship with the external auditor.

A state in which the auditor's judgement is not compromised by financial, personal, business or other relationships with the client, so that conclusions remain objective and unbiased.

The ethical principle requiring a member not to compromise professional or business judgement because of bias, conflict of interest or undue influence of others.

A circumstance, such as self-interest, self-review, advocacy, familiarity or intimidation, that could compromise the auditor's objectivity and must be evaluated and safeguarded against.

A control or action, such as rotation of engagement partners or independent reviews, that reduces an identified threat to independence to an acceptable level.

An attitude of questioning mind and critical assessment of evidence, alert to conditions indicating possible misstatement due to error or fraud, without assuming dishonesty.

The threshold above which omissions or misstatements of financial information could influence the economic decisions of users taken on the basis of the financial statements.

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

The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated; it comprises inherent, control and detection risk.

The susceptibility of an assertion to material misstatement before considering any related internal controls, driven by the nature of the item or its environment.

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

The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect an existing material misstatement.

Information used by the auditor in arriving at the conclusions on which the audit opinion is based; it must be sufficient in quantity and appropriate in relevance and reliability.

Procedures, including tests of detail and substantive analytical procedures, designed to detect material misstatements at the assertion level rather than to test controls.

Evaluations of financial information through analysis of plausible relationships among financial and non-financial data, used in risk assessment, as substantive tests and in final review.

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

The policies and procedures designed to provide reasonable assurance about the reliability of reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.

A control that separates authorisation, custody of assets, and record-keeping so that no single person can both perpetrate and conceal an error or fraud.

An intentional act by one or more individuals involving deception to obtain an unjust or illegal advantage, distinguished from error by the underlying intent.

The assumption that an entity will continue in operation for the foreseeable future, with neither the intention nor the necessity of liquidation or ceasing to trade.

A transfer of resources, services or obligations between an entity and a related party, regardless of whether a price is charged, requiring specific disclosure.

The assertion that transactions and events have been recorded in the correct accounting period, tested by examining transactions around the reporting date.

The auditor's formal conclusion, expressed as unmodified or modified (qualified, adverse or disclaimer), on whether the financial statements are presented fairly in all material respects.

A written agreement setting out the agreed terms of an audit or assurance engagement, including the objective, scope, responsibilities of the parties and the form of report.

An objective evaluation of significant judgements and conclusions before the report is issued, performed for listed and other high-risk engagements by an independent partner.

The ethical duty not to disclose information acquired through professional relationships without proper authority, unless there is a legal or professional right or duty to disclose.

The obligation to attain and maintain the knowledge and skill required to ensure a client receives competent professional service based on current developments in practice and law.

A threat arising when the auditor evaluates prior work performed by the firm or its personnel, such as preparing records that are later audited.

A possible obligation whose existence will be confirmed only by uncertain future events, or a present obligation not recognised because outflow is not probable or measurable.

Events occurring between the reporting date and the date the financial statements are authorised for issue, requiring adjustment or disclosure depending on their nature.

Representations by management, such as existence, completeness, accuracy, valuation and rights and obligations, that the auditor uses to assess risks and design procedures.

A written statement from management confirming responsibilities and the completeness and accuracy of information provided to the auditor, dated near the audit report date.

The risk that the auditor's conclusion based on a sample differs from the conclusion that would be reached if the whole population were tested.