ACCA AA Course Notes Flashcards

Flashcards for ACCA Audit and Assurance (AA) course notes, covering key vocabulary and definitions to assist in exam preparation.

Audit

An evaluation of an organization, system, or process to ascertain the validity and reliability of information and assess internal control.

External Audit

An independent examination and expression of opinion on the financial statements of an entity.

True and Fair View

A representation of financial statements containing no significant/material errors; factual and compliant with accounting standards, clear, impartial, unbiased, and reflecting the substance of transactions.

Assurance Engagement

An assignment where a practitioner expresses a conclusion designed to give confidence about the outcome of a particular subject matter.

Review Engagement

Involves a practitioner reviewing financial data (e.g., interim financial statements) and stating whether anything has come to their attention which causes them to believe the financial data is not in accordance with the financial reporting framework.

Limited Level of Assurance

Assurance presented in a negative way, stating that “nothing has come to their attention” that causes them to believe that the subject matter is not free from material misstatement.

Reasonable Level of Assurance

A positive opinion, stating that the subject matter conforms in all material respects with the identified criteria. For example, the statutory audit, stating that the financial statements “give a true and fair view” of the company’s affairs.

Statutory Audits

External audits required by law for most companies (except small or dormant companies).

Corporate Governance

The way in which companies are organized and controlled. A strong system gives credibility to a company’s financial statements.

Executive Directors

Directors involved in the day-to-day running of the company; usually full-time employees paid a salary.

Non-Executive Directors (NEDs)

Independent, part-time directors who scrutinize the company’s affairs; usually paid a fee and should be independent of the company to be more objective.

Audit Committee

A committee made up of at least three independent NEDs (two in smaller companies), at least one of whom has recent and relevant financial experience, responsible for monitoring the integrity of financial statements, reviewing internal controls, and overseeing the external auditor.

Financial Risks

Risks that would affect the entity’s cash flow, such as movement in interest rates or exchange rates.

Compliance Risks

Risks relating to laws and regulations, e.g., health and safety rules.

Operational Risks

Risks relating to the day-to-day operations of the business, e.g., loss of key staff, inventory management.

Integrity

The fundamental principle where accountants must be honest and straightforward in performing professional services, including fair dealing, truthfulness, and having strength of character to act appropriately.

Objectivity

The fundamental principle where accountants must not compromise professional or business judgments because of bias, conflict of interest, or undue influence.

Audit Risk

The risk of the auditor giving an incorrect opinion on the financial statements being audited; for example, failing to modify the audit opinion when the financial statements contain a material misstatement.

Inherent Risk

The susceptibility of an assertion about a class of transactions, account balance, or disclosure to a misstatement that could be material, before consideration of any related controls.

Control Risk

The risk that a material misstatement that could occur in an assertion about a class of transaction, account balance or disclosure will not be prevented, or detected and corrected on a timely basis by the entity’s internal control system.

Detection Risk

The risk that the auditor's procedures will fail to detect a material misstatement. This is the only risk that can be directly controlled by the auditor.

Materiality

An item is considered material if its omission or misstatement could influence the economic decisions of users.

Analytical Procedures

The evaluation of financial information in order to spot fluctuations and relationships that are inconsistent with other relevant information.

Internal Control

The process designed, implemented, and maintained by those charged with governance, management, and other personnel to provide reasonable assurance that an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations will be achieved.

Tests of Control

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

Substantive Procedures

Audit procedures designed to detect material misstatements in account balances, transaction classes, and disclosures.

Walkthrough test

The auditor performs this test by following one transaction through each stage of the accounting process to ensure that the systems and controls operate as documented.This is NOT a test of control (ie that controls are operating properly), it is a test to confirm that system matches what the auditor has been told (ie that controls which have been described appear to exist).

Computer-Assisted Audit Techniques (CAATs)

Techniques used to assist the auditor in the collection of audit evidence from computerised systems, enabling the auditor to test a greater number of items quickly and accurately.

Adjusting events

Provide additional evidence of conditions that exist at the year end. An adjustment must be in the financial statements to reflect this event.

Non-adjusting events

Events which did not exist at the year end. These events must be disclosed in the financial statements if material.

Going concern

An entity is ordinarily viewed as continuing in business for the “foreseeable future” with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors.This “foreseeable future” should be at least 12 months after the period end.

Written representations

A form of audit evidence contained in a letter, written by the company’s directors and sent to the auditor, prior to the completion of audit work and before the auditor’s report is signed.The directors can acknowledge their collective responsibility for the preparation of the financial statements and confirm any matters which are material to the financial statements where representations are crucial to obtaining sufficient and appropriate audit evidence.

Unmodified opinion

Expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework i.e. they give a true and fair view.

Key audit matters

Those that in the auditor’s opinion were of most significance during the audit and are selected from matters reported to those charged with governance.

Emphasis of Matter

The auditor’s report is modified by adding an emphasis of matter paragraph to re-highlight a significant matter other than going concern such as significant uncertainty which is fundamental to the users’ understanding of the financial statements.

adverse opinion

If the misstatement is material and pervasive, then the auditor’s report states that the auditor is of the opinion that the financial statements do not give a true and fair view: An additional, explanatory paragraph is added to the auditor’s report after the opinion paragraph, called a “Basis for Adverse Opinion” paragraph.

disclaimer of opinion

The auditor issues a disclaimer of opinion when they are unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.