Exam 2 Study Guide-pages-8

Significant Deficiency

Less severe than a material weakness but important enough to be reported to management and governance.

Likelihood

The probability that a misstatement will occur in financial reporting.

Magnitude

The potential impact of a misstatement in financial reporting.

Internal Control over Financial Reporting (ICFR)

A process designed by management to provide reasonable assurance regarding the reliability of financial reporting.

Top-Down, Risk-Based Approach

SEC’s guidance for assessing ICFR based on evaluating risks and controls.

Entity-Level Controls

Controls that affect the overall financial system and mitigate reporting risks.

Material Weakness

A significant deficiency in ICFR that could lead to financial misstatement.

Unqualified Opinion

Issued when ICFR is designed and operating effectively in all material respects.

Adverse Opinion

Issued when ICFR has a material weakness that has not been remediated.

Audit Committee

A committee responsible for overseeing financial reporting and disclosure.

PCAOB Standards

Requirements set by the Public Company Accounting Oversight Board for auditor documentation and retention.

Retraction Requirement

The requirement for auditors to retain documentation for a minimum of seven years.

Auditor’s Report Elements

Includes the title, opinion on ICFR effectiveness, basis for opinion, and auditor's signature.