Fundamental Principles of Assurance & Audit Services – Core Vocabulary

A comprehensive set of vocabulary flashcards covering key terms, roles, risks, standards, and concepts in assurance services and financial-statement auditing.

Assurance

The practitioner’s satisfaction about the reliability of an assertion made by one party for use by another party.

Assurance Engagement

A service in which a practitioner expresses a conclusion designed to enhance users’ confidence about the outcome of evaluating a subject matter against suitable criteria.

Practitioner

The independent CPA who performs the assurance engagement and issues the assurance report.

Responsible Party

The person or organization responsible for the subject matter and/or the subject-matter information.

Intended Users

The individuals or groups for whom the practitioner prepares the assurance report.

Subject Matter

The nature of the information (e.g., financial statements, controls, GHG emissions) that is evaluated in an assurance engagement.

Subject-Matter Information

The outcome of measuring or evaluating the subject matter against the criteria (e.g., the financial statements themselves).

Suitable Criteria

Benchmarks used to evaluate or measure the subject matter; they must be relevant, reliable, understandable, neutral and complete.

Reliability (Criterion Quality)

Allows reasonably consistent evaluation or measurement when used by similarly qualified practitioners.

Understandability (Criterion Quality)

Contributes to clear, comprehensive conclusions not prone to different interpretations.

Neutrality (Criterion Quality)

Results in conclusions that are free from bias.

Completeness (Criterion Quality)

Ensures no relevant factor affecting conclusions is omitted, including presentation and disclosure benchmarks.

Relevance (Criterion Quality)

Helps intended users make economic decisions.

Sufficient Appropriate Evidence

The quantity and quality of evidence necessary for the practitioner to form a reasonable basis for a conclusion.

Professional Skepticism

A questioning mind and critical assessment of evidence, recognizing possible material misstatement due to fraud or error.

Materiality

Magnitude or nature of misstatements that could influence the decisions of intended users.

Assurance Engagement Risk

Risk that the practitioner expresses an inappropriate conclusion when subject-matter information is materially misstated.

Inherent Risk

Susceptibility of subject-matter information to material misstatement assuming no related controls.

Control Risk

Risk that a material misstatement will not be prevented or detected and corrected by internal control on a timely basis.

Detection Risk

Risk that the practitioner’s procedures will fail to detect an existing material misstatement.

Reasonable Assurance Engagement

Provides a high (but not absolute) level of assurance expressed in a positive form (e.g., “present fairly…”).

Limited Assurance Engagement

Provides a moderate level of assurance expressed negatively (e.g., “nothing has come to our attention…”).

Positive Assurance

An explicit affirmative expression that the subject matter meets the criteria (used in reasonable assurance).

Negative Assurance

A statement that nothing has been found to indicate material misstatement (used in limited assurance).

Attestation Engagement

An assertion-based engagement where the responsible party measures the subject matter and the practitioner attests to that written assertion.

Direct Engagement

A direct-reporting engagement in which the practitioner directly measures or evaluates the subject matter and reports the findings.

Assertion-Based Engagement

Another term for attestation engagement; the subject-matter information includes the responsible party’s written assertion.

Non-Assurance Engagement

A professional service that lacks one or more assurance elements and provides no conclusion (e.g., compilations, agreed-upon procedures).

Agreed-Upon Procedures (AUP)

A non-assurance engagement in which specific procedures are performed and factual findings reported; users draw their own conclusions.

Compilation Engagement

Using accounting expertise to collect, classify and summarize information without providing assurance.

Management Advisory Services

Consulting services that provide advice or recommendations to improve an entity’s operations; no assurance is given.

Audit

A systematic process of objectively obtaining and evaluating evidence about assertions regarding economic actions and events, and communicating results.

Financial Statement Audit

An examination of an entity’s financial statements to express an opinion on whether they are fairly presented in accordance with a framework such as PFRS.

Operational Audit

A systematic review of activities to assess efficiency, effectiveness, and economy; also called performance or management audit.

Compliance Audit

An audit to determine whether activities comply with laws, regulations, contracts, or policies.

External Auditor

An independent CPA engaged to perform audits or other services for an entity of which the auditor is not an employee.

Internal Auditor

An independent appraisal function within an organization that examines and evaluates its activities for management.

Government Auditor

Auditor who examines the use of public funds and the efficiency and compliance of government programs.

Audit Evidence

Information used by the auditor to arrive at conclusions on which the audit opinion is based.

Audit Risk

Risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.

Reasonable Assurance (Audit Context)

A high level of assurance obtainable in an audit; not a guarantee of absolute accuracy.

Information Risk

Risk that information provided by management contains misstatements.

Business Risk

Risk that an event will prevent an entity from achieving its objectives, such as profit maximization.

3SECC

Acronym for the five elements of an assurance engagement: Three-party relationship, Subject matter, Suitable criteria, Evidence (sufficient & appropriate), Conclusion (written report).

Cost-Benefit Consideration

The principle that the benefits of evidence gathered should exceed the cost of obtaining it.

PFRS - Philippine Financial Reporting Standards

the applicable financial reporting framework in the Philippines.

International Federation of Accountants (IFAC)

Global organization for the accountancy profession supporting high-quality international standards.

IAASB - International Auditing and Assurance Standards Board

issues international standards on auditing and assurance.

IESBA - International Ethics Standards Board for Accountants

sets the International Code of Ethics for Professional Accountants.

IPSASB - International Public Sector Accounting Standards Board

develops standards for government and public-sector entities.

PSAs - Philippine Standards on Auditing

engagement standards governing audits of historical financial information.

PSRES - Philippine Standards on Review Engagements

standards for limited assurance reviews of historical financial information.

PSAE 3000 (Revised)

Philippine Standard governing assurance engagements other than audits or reviews of historical financial information.

PSRSS - Philippine Standards on Related Services

covers AUP, compilation and other specified related services.

PSQC - Philippine Standards on Quality Control

requirements for firms’ systems of quality control for assurance and related services.

Unmodified / Unqualified Opinion

Audit report stating that financial statements present fairly, in all material respects, in accordance with the framework.

Qualified Opinion

Issued when the auditor concludes that misstatements or scope limitations are material but not pervasive.

Adverse Opinion

Issued when misstatements are both material and pervasive, leading to the conclusion that financial statements do not present fairly.

Disclaimer of Opinion

Issued when the auditor cannot obtain sufficient appropriate evidence and the possible effects are both material and pervasive.

Auditability

The condition where adequate records and documentation exist to permit a financial statement audit.