CPA Advanced Auditing flashcards

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

Audit risk model

AR = IR × CR × DR. The auditor assesses inherent and control risk, then sets detection risk at a level that keeps overall audit risk acceptably low.

Detection risk

The risk that procedures performed to reduce audit risk to an acceptably low level will not detect a material misstatement. It is controlled by the auditor and moves inversely with assessed RMM.

Risk of material misstatement

The product of inherent risk and control risk: the risk that the financial statements are materially misstated before audit. It is assessed at the financial statement and assertion levels.

Assertions

Representations by management embodied in the financial statements, such as existence, completeness, accuracy, valuation, rights and obligations, and presentation, used to design audit procedures.

Sufficiency of evidence

The quantity of audit evidence. It is affected by assessed risk, quality of evidence obtained, and materiality of the item being tested.

Appropriateness of evidence

The relevance and reliability of audit evidence in providing support for the conclusions on which the auditor's opinion is based. Reliability rises with independence of source and direct auditor observation.

Professional scepticism

An attitude of questioning mind, alertness to conditions indicating possible misstatement, and critical assessment of evidence, including contradictory evidence and management representations.

Performance materiality

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

Clearly trivial threshold

A monetary amount below which misstatements are clearly trivial and need not be accumulated. It is not a substitute for materiality and is set well below performance materiality.

Sampling risk

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

Non-sampling risk

The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling, such as inappropriate procedures, misinterpretation of evidence, or auditor error.

Going concern assessment

Evaluation of management's assessment of the entity's ability to continue as a going concern for at least twelve months from the financial statement date, including adequacy of related disclosures.

Management override presumption

The presumed risk that management overrides controls in every audit, requiring journal entry testing, retrospective review of estimates, and evaluation of significant unusual transactions.

Revenue recognition fraud presumption

The presumption that revenue recognition involves fraud risk, which the auditor may rebut only with documented justification, and which requires procedures addressing the risk.

Key audit matters

Matters communicated or required to be communicated to the audit committee that involved especially challenging, subjective, or complex auditor judgment, and are material to the financial statements.

Critical audit matters

Under PCAOB standards, matters arising from the audit communicated to the audit committee, relating to material accounts or disclosures, and involving especially challenging, subjective, or complex auditor judgment.

Emphasis of Matter paragraph

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

Qualified opinion

An opinion issued when the auditor obtains sufficient appropriate evidence and concludes misstatements are material but not pervasive, or when unable to obtain evidence but possible effects are material but not pervasive.

Adverse opinion

An opinion that, because of the pervasiveness and materiality of misstatements, the financial statements do not give a true and fair view or are not presented fairly in all material respects.

Disclaimer of opinion

An opinion issued when the auditor is unable to obtain sufficient appropriate evidence and concludes the possible effects of undetected misstatements are both material and pervasive.

Group engagement partner

The engagement partner responsible for the group audit, including direction, supervision, review, and evaluation of component auditor work and communication with those charged with governance.

Component auditor

An auditor who performs work on the financial information of a component for a group audit, which the group engagement team evaluates for sufficiency and appropriateness as audit evidence.

Auditor's expert

An individual or organisation with expertise in a field other than accounting or auditing, whose work is used as audit evidence; competence, capabilities, and objectivity must be assessed.

Related party transaction

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

Accounting estimate

A monetary amount measured at a value that is uncertain because it depends on future events, such as impairment, provisions, or fair value, requiring evaluation of management's method and assumptions.

Management bias

An indicator of possible intentional misstatement arising from management's judgments and decisions, evaluated across estimates and the financial statements as a whole.

Written representations

A written statement by management provided to the auditor to confirm certain matters or support other audit evidence; they are not a substitute for other sufficient appropriate evidence.

Subsequent events review

Procedures performed up to the date of the auditor's report to identify events after the reporting period that may require adjustment or disclosure in the financial statements.

Audit documentation

The record of procedures performed, relevant audit evidence obtained, and conclusions reached. It must be sufficient to enable an experienced auditor with no connection to the engagement to understand the work.

Engagement quality review

An objective evaluation of the significant judgments and conclusions of the engagement team, performed before the report is issued for listed entities and other specified engagements.

Three lines model

A governance framework separating operational management (first line), risk and compliance oversight (second line), and independent internal audit (third line) to support effective control and assurance.

Control deficiency

A deficiency in the design, implementation, or operating effectiveness of a control that prevents, or fails to detect and correct on a timely basis, misstatements in the financial statements.

Independence of mind

The state of mind enabling the expression of a conclusion without being affected by influences that compromise professional judgment, allowing the auditor to act with integrity and objectivity.