Assurance Principles, Professional Ethics, and Good Governance Reviewer

Vocabulary practice flashcards covering auditing concepts, the audit process, internal control, substantive testing, sampling, reporting, and professional ethics based on the Assurance Principles review notes.

Audit (AASC Definition)

A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users.

Financial Statement Audit

An audit conducted to determine whether the financial statements of an entity are fairly presented in accordance with an identified financial reporting framework, usually conducted by external auditors.

Compliance Audit

A review of an organization's procedures to determine whether the organization adhered to specific procedures, rules, contracts, or regulations, usually conducted by government auditors.

Operational Audit

A study of a specific unit of an organization for the purpose of measuring its performance, usually conducted by internal auditors.

Generally Accepted Auditing Standards (GAAS)

Measures of the quality of an auditor's performance that serve as the minimum standard of performance auditors should follow.

Philippine Standards on Auditing (PSA)

Standards issued by the Auditing and Assurance Standards Council (AASC) as interpretations of GAAS, establishing the independent auditor's overall responsibilities when conducting an audit of financial statements.

Practice Statements

Additions to auditing standards that provide practical assistance to auditors in implementing the standards and promote good practice in the accountancy profession.

Quality Controls

Policies and procedures adopted by CPAs to provide reasonable assurance of conforming to professional standards in performing audit and related services.

Error

Unintentional misstatements in the financial statements, such as mathematical or clerical mistakes, incorrect accounting estimates, or mistakes in the application of accounting policies.

Fraud

An intentional act by one or more individuals among management, employees, or third parties that results in a misrepresentation of financial statements.

Fraudulent Financial Reporting (Management Fraud)

Intentional misstatements or omissions of amounts or disclosures in financial statements, usually committed by members of management or those charged with governance.

Misappropriation of Assets (Employee Fraud)

Fraud accompanied by false or misleading records in order to conceal the fact that assets are missing, commonly involving theft or embezzlement.

Noncompliance with Laws and Regulations

Acts of omission or commission by the entity being audited, either intentional or unintentional, which are contrary to prevailing laws or regulations.

Audit Evidence

Information obtained by the auditor in arriving at the conclusions on which the audit opinion is based, comprising underlying accounting data and corroborating information from other sources.

Engagement Letter

A written contract between the auditor and the client that confirms the auditor's acceptance of the appointment, the objective and scope of the audit, and management's responsibilities.

Audit Planning

Developing a general audit strategy and a detailed approach for the expected conduct of the audit, with the main objective of determining the scope of audit procedures to be performed.

Materiality

The threshold where information's omission or misstatement could influence the economic decisions of users, viewed as the largest amount of misstatement an auditor can tolerate in the financial statements.

Audit Risk

The risk that the auditor gives an inappropriate audit opinion on the financial statements when the financial statements are materially misstated.

Inherent Risk

The susceptibility of an account balance or class of transactions to a material misstatement assuming that there are no related internal controls.

Control Risk

The risk that a material misstatement that could occur in an account balance or class of transactions will not be prevented or detected on a timely basis by accounting and control systems.

Detection Risk

The risk that an auditor's substantive procedures will not detect a material misstatement that exists in an assertion.

Risk Assessment Procedures

Procedures performed by auditors to obtain an understanding of the entity and its environment, including its internal control, and to assess the risks of material misstatement in the financial statements.

Analytical Procedures

The analysis of significant ratios and trends, including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from particular amounts.

Audit Plan

An overview of the expected scope and conduct of the audit, setting out in broad terms the nature, timing, and extent of the audit procedures to be performed.

Audit Program

A document setting out in detail the audit procedures to be performed in each segment of the audit.

Time Budget

An estimate of the time that will be spent in executing the audit procedures listed in the audit program.

Internal Control (PSA 315)

The process designed and effected by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of an entity's objectives regarding reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.

Control Environment

The internal control component that includes the attitudes, awareness, and actions of management and those charged with governance concerning internal control and its importance in the entity.

Business Risk

The risk that the entity's business objectives will not be attained as a result of internal and external factors such as technological developments and changes in customer demand.

Walk-Through Test

Tracing one or two transactions through the entire accounting system from their initial recording at source to their final destination as a component of an account balance in the financial statements.

Test of Controls

Audit procedures performed to obtain evidence about the effectiveness of the design or operation of accounting and internal control systems throughout the period.

General Controls (CIS)

Control policies and procedures that relate to the overall computer information system, including organization, systems development, access, data recovery, and monitoring controls.

Application Controls (CIS)

Specific policies and procedures relating to specific computer applications, categorised into controls over input, processing, and output.

Computer-Assisted Audit Techniques (CAATs)

Computer programs and data used by the auditor as part of audit procedures to process data of audit significance contained in an entity's information systems.

Test Data

A CAAT technique where the auditor inputs test data into the client's computer program to determine whether the program correctly handles valid and invalid conditions as they arise.

Integrated Test Facility (ITF)

A CAAT technique where dummy or fictitious entity records are created to integrate the processing of test data with actual transactions without management being aware.

Parallel Simulation

A CAAT technique requiring the auditor to write a program that simulates key processes of the client's software to reprocess transactions previously processed by the client.

Substantive Tests

Audit procedures designed to substantiate account balances or detect material misstatements in the financial statements, consisting of analytical procedures and tests of details.

Test of Details of Balances

A substantive test involving direct testing of the ending balance of an account, typically used when balances are affected by a large volume of relatively immaterial transactions.

Test of Details of Transactions

A substantive test involving testing transactions that give rise to the ending balance of an account, useful when balances consist of a small volume of relatively material amounts.

Working Papers

Records kept by the auditor that document the audit procedures applied, information obtained, and conclusions reached during an audit engagement.

Permanent File

A classification of working papers containing information of continuing significance to recurring audits, such as articles of incorporation, bylaws, major contracts, and organization charts.

Current File

A classification of working papers containing evidence gathered and conclusions reached relevant strictly to the audit of a particular year.

Accounting Estimate (PSA 540)

An approximation of the amounts of an item in the absence of a precise means of measurement.

Related Parties

Persons or entities that have dealings with one another where one party has the ability to exercise significant influence or control over the other party in making financial and operating decisions.

Auditor's Expert (PSA 620)

An expert in a field other than accounting and auditing whose work is used by the auditor to assist in obtaining sufficient appropriate audit evidence.

Management's Expert

An expert in a field other than accounting or auditing whose work is used by the entity to assist in preparing the financial statements.

Audit Sampling (PSA 530)

The application of audit procedures to less than 100% of the items within an account balance or class of transactions such that all sampling units have a chance of selection.

Sampling Risk

The possibility that the auditor's conclusion based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedures.

Non-Sampling Risk

The risk that the auditor draws incorrect conclusions about an account balance or class of transactions because of human errors.

Attribute Sampling

An audit sampling plan used in tests of controls to estimate the frequency of occurrence of a certain characteristic or deviation rate in a population.

Variable Sampling

An audit sampling plan used in substantive tests to estimate a numerical measurement of a population, such as peso value or misstatement amounts.

Alpha Risk

A sampling risk that results in an auditor performing more audit procedures than necessary, thereby affecting audit efficiency (risk of underreliance or incorrect rejection).

Beta Risk

A sampling risk that results in an auditor performing fewer audit procedures than necessary, thereby affecting audit effectiveness (risk of overreliance or incorrect acceptance).

Subsequent Events (PSA 560)

Events or transactions occurring between the balance sheet date and the date of the auditor's report, as well as facts discovered after the report date, that may affect the financial statements.

Dual Dating

A method of dating the audit report where the report bears the original date of completion of procedures except for a specific later date applicable to a specific subsequent event.

Management Representation Letter (PSA 580)

A written statement provided by management to the auditor confirming that management has fulfilled its responsibility for the fair preparation and presentation of the financial statements.

Unmodified Report (PSA 700)

An audit report issued when the auditor concludes that the financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework.

Qualified Opinion

A modified audit opinion expressed using the phrase 'except for' when misstatements or scope limitations are material but not pervasive to the financial statements.

Adverse Opinion

A modified audit opinion stating that the financial statements do not present fairly, issued when misstatements are both material and pervasive.

Disclaimer of Opinion

A modified audit report issued when the auditor is unable to obtain sufficient appropriate evidence due to a material and pervasive scope limitation, stating that no opinion is expressed.

Emphasis of Matter Paragraph

A paragraph placed after the opinion paragraph to draw attention to a matter properly presented or disclosed in the financial statements that is fundamental to users' understanding.

Other Matter Paragraph

A paragraph included in the auditor's report that refers to a matter other than those presented or disclosed in the financial statements that is relevant to users' understanding of the audit.

Self-Interest Threat

The ethical threat that a financial or other interest will inappropriately influence the professional accountant's judgment or behavior.

Self-Review Threat

The ethical threat that a professional accountant will not objectively evaluate the results of a previous judgment made or service provided when forming a conclusion.

Advocacy Threat

The ethical threat that a professional accountant will promote a client's or employer's position to the point that their objectivity is compromised.

Familiarity Threat

The ethical threat occurring when, by virtue of a close relationship with an assurance client, an accountant becomes too sympathetic to the client's interests.

Intimidation Threat

The ethical threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence.

Republic Act No. 9298

The Philippine Accountancy Act of 2004, enacted on May 13, 2004, which provides for the regulation of accounting education, examination for licensure, and supervision and control of accountancy practice.