Certified Public Accountant Examination key terms

The dollar threshold above which a misstatement or omission could reasonably influence a user's economic decisions based on the financial statements; it drives the scope of testing and the evaluation of uncorrected misstatements.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated; it is modeled as the product of inherent, control, and detection risk.

The susceptibility of an assertion to material misstatement before considering any related internal controls; it is higher for complex estimates, related-party transactions, and accounts requiring judgment.

The risk that audit procedures fail to detect a material misstatement that exists; the auditor controls it by adjusting the nature, timing, and extent of substantive testing.

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 guides the extent of testing.

Information used by the auditor to reach conclusions supporting the audit opinion; it must be sufficient in quantity and appropriate in relevance and reliability, with external documentary evidence generally ranked above internal or oral evidence.

Tests of details and substantive analytical procedures designed to detect material misstatements at the assertion level; they are required for every relevant assertion regardless of assessed control risk.

Procedures that evaluate the operating effectiveness of controls in preventing or detecting material misstatements; the results determine whether the auditor may rely on controls and reduce substantive testing.

The risk that a material misstatement will not be prevented or detected on a timely basis by the entity's internal control; it is assessed by the auditor and cannot be reduced by audit procedures.

The auditor's formal conclusion on whether the financial statements are presented fairly, in all material respects; it may be unmodified, qualified, adverse, or a disclaimer, depending on the nature and pervasiveness of issues.

The assumption that an entity will continue operating for a reasonable period without liquidation; substantial doubt requires disclosure and, in some cases, an emphasis-of-matter paragraph or modified opinion.

Direct written response from a third party verifying account balances or terms, such as bank balances, receivables, or debt covenants; it is a highly reliable form of externally sourced audit evidence.

Evaluations of financial information through plausible relationships among data, used in risk assessment, as substantive procedures, and in the final review for inconsistencies; significant unexpected variances require inquiry and corroboration.

The five-step model requiring identification of the contract, performance obligations, transaction price, allocation, and recognition when control transfers; timing depends on whether obligations are satisfied over time or at a point.

A promise to transfer a distinct good or service to a customer; each obligation is identified separately because the transaction price is allocated to it and revenue is recognized when it is satisfied.

A right to consideration conditioned on something other than the passage of time, such as future performance; it differs from a receivable, which is an unconditional right to payment.

The present value of unpaid lease payments discounted at the rate implicit in the lease or the lessee's incremental borrowing rate; it is recognized with a corresponding right-of-use asset for most leases.

The lessee's asset representing the right to use an underlying asset for the lease term, measured initially at the lease liability plus initial direct costs and prepaid rent, less incentives received.

The excess of consideration transferred plus fair value of noncontrolling interest over the fair value of identifiable net assets acquired; it is not amortized but tested annually for impairment.

A transaction in which an acquirer obtains control of a business, accounted for using the acquisition method: identify the acquirer, determine the acquisition date, recognize assets and liabilities at fair value, and measure goodwill.

A reduction in the carrying amount of an asset when its recoverable amount falls below book value; measurement differs by asset type, with goodwill tested at the reporting unit level.

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it is classified into three levels based on observable inputs.

A balance arising from deductible temporary differences, tax loss carryforwards, or credits that will reduce future taxable income; it is recognized only to the extent realization is more likely than not.

A difference between the tax basis of an asset or liability and its reported carrying amount that will reverse in future periods, giving rise to deferred tax assets or liabilities.

The process of combining a parent and its controlled subsidiaries into a single set of financial statements, eliminating intercompany balances and transactions and reporting noncontrolling interest separately.

Events occurring after the balance sheet date but before statements are issued; recognized events provide evidence of conditions existing at the balance sheet date, while nonrecognized events require disclosure only.

All income from whatever source derived unless specifically excluded by statute; deductions are applied to arrive at taxable income, and character, timing, and source rules govern how each item is treated.

The taxpayer's investment in property for tax purposes, used to measure gain or loss on disposition; it starts with cost or carryover basis and is adjusted for capital improvements, depreciation, and certain distributions.

Gain from the sale of a capital asset held for investment, taxed at preferential rates if long-term; holding period and character drive the rate, and netting rules combine gains and losses by character.

A transaction deferring gain when business or investment real property is exchanged for other real property of like kind, with boot received triggering recognized gain to that extent.

The category determining tax rates, standard deduction, and credit eligibility, such as single, married filing jointly, married filing separately, head of household, or qualifying surviving spouse.

Quarterly payments of tax required when withholding is insufficient; underpayment penalties apply unless safe-harbor thresholds based on current or prior-year tax are met.

Treasury regulations governing practice before the IRS, covering duties of competence, confidentiality, conflicts of interest, and standards for tax return positions and written advice.

A standard for tax return positions requiring roughly a one-in-three likelihood of being upheld; positions meeting it avoid the accuracy-related penalty, while disclosure may be needed below that level.

Sufficient information in the financial statements and notes to prevent misleading users, including accounting policies, contingencies, related-party transactions, and significant estimates and judgments.

Recognizing revenues when earned and expenses when incurred, regardless of cash timing; it requires adjusting entries for accruals and deferrals at period end.

An existing condition with uncertain outcome resolved by future events; a loss is accrued when probable and reasonably estimable, while a gain is recognized only when realized or realizable.

A statement classifying cash receipts and payments into operating, investing, and financing activities; interest and dividends received are operating under U.S. GAAP, while dividends paid are financing.