ICAEW Assurance flashcards

32 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, limited by sampling risk, estimation uncertainty and the possibility of fraud concealment.

Audit risk model

Audit risk equals risk of material misstatement multiplied by detection risk. Detection risk is the only element the auditor controls through the nature, timing and extent of procedures.

Performance materiality

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed materiality for the financial statements as a whole.

Inherent risk

The susceptibility of an assertion to material misstatement before considering related controls. ISA 315 (Revised) assesses it on a spectrum using likelihood and magnitude of potential misstatement.

Control risk

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

Detection risk

The risk that procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists. It moves inversely with the risk of material misstatement.

Materiality

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

Professional scepticism

An attitude of questioning mind, being alert to conditions indicating possible misstatement due to error or fraud, and critically assessing evidence rather than accepting it at face value.

Unmodified opinion

The conclusion that the financial statements give a true and fair view, or are presented fairly in all material respects, in accordance with the applicable financial reporting framework.

Qualified opinion

Issued when the auditor concludes misstatements are material but not pervasive, or sufficient appropriate evidence cannot be obtained and the possible effects are material but not pervasive.

Adverse opinion

Issued when misstatements are both material and pervasive to the financial statements, meaning the statements as a whole are misleading and do not give a true and fair view.

Disclaimer of opinion

Issued when the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects of undetected misstatements are both material and pervasive.

Key audit matters

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

Emphasis of matter paragraph

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

Going concern material uncertainty

When a material uncertainty exists but is adequately disclosed, the auditor gives an unmodified opinion and includes a separate section headed Material Uncertainty Related to Going Concern.

Management override

A presumed significant fraud risk under ISA 240, because management is able to manipulate accounting records and prepare fraudulent financial statements by overriding controls.

Sufficient appropriate evidence

Evidence measured by quantity (sufficiency) and by relevance and reliability (appropriateness). Evidence obtained directly by the auditor from independent external sources is generally most reliable.

External confirmation

Audit evidence obtained as a direct written response from a third party to the auditor in paper or electronic form, for example a bank confirmation or a customer balance confirmation.

Positive confirmation

A request that the third party respond directly to the auditor in all cases, either agreeing with or disagreeing with the stated balance or information.

Negative confirmation

A request that the third party respond only if it disagrees with the information. Appropriate only when risk of material misstatement is low and many small balances are involved.

Sampling risk

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

Non-sampling risk

The risk that the auditor reaches an inappropriate conclusion for reasons unrelated to sample size, such as using inappropriate procedures or failing to recognise a misstatement.

Tolerable deviation rate

The maximum rate of deviations from a prescribed control the auditor is willing to accept and still conclude the control is operating effectively for reliance purposes.

Tolerable misstatement

A monetary amount set by the auditor, usually lower than materiality, to obtain an appropriate level of assurance that the total misstatement in a population does not exceed materiality.

Substantive analytical procedures

Procedures evaluating financial information through analysis of plausible relationships, requiring a sufficiently precise expectation and a defined threshold for investigating differences from that expectation.

Tests of controls

Procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.

Substantive procedures

Procedures designed to detect material misstatements at the assertion level, comprising tests of details of transactions, balances and disclosures and substantive analytical procedures.

Inquiry alone insufficient

Inquiry is used throughout the audit but, because responses may be biased or inaccurate, it cannot by itself provide sufficient appropriate audit evidence for any assertion.

Cut-off assertion

Transactions and events have been recorded in the correct accounting period, tested by comparing despatch or receipt records around the year end with recorded sales and purchases.

Existence assertion

Assets, liabilities and equity interests exist at the reporting date, tested typically by physical inspection of tangible assets or external confirmation of balances.

Completeness assertion

All transactions, events, balances and disclosures that should have been recorded have been recorded, tested by tracing source documents into the accounting records.

Audit documentation

Under ISA 230, a record of procedures performed, relevant evidence obtained and conclusions reached, sufficient for an experienced auditor with no prior connection to understand the work.