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Performance materiality
The materiality level that an auditor uses for determining significant accounts, significant locations, and audit procedures for those accounts and locations.
Risk of material misstatement
A risk that exists at the overall financial statement level and at the assertion level, involving inherent risk and control risk.
Inherent risk
Represents an identified and assessed risk of material misstatement that requires special audit consideration.
Acceptable audit risk
The impact on the amount of acceptable audit risk if an auditor believes the chance of financial failure of a client is high.
Inherent risk assessment
The factor that should lead an auditor to assess inherent risk as high.
Client business risk assessment
The factor that would lead an auditor to assess client business risk at a higher level.
Overall materiality
The materiality level set by an auditor that would be material to the income statement and the balance sheet.
Performance materiality assessment
The amount an auditor typically assesses performance materiality to be for a client.
Posting materiality
The percentage at which auditors commonly set posting materiality.
Quantitative evaluation
Determining whether the upper limit of the possible deviation rate exceeds the tolerable deviation rate.
Audit objective adjustment
When an auditor would change an audit objective to estimating the correct value.
Tainting percentage
The percentage of misstatement present in a logical unit.
Risk of overreliance
A 5% risk of overreliance reflected in a statement.
Sampling objective
The objective of sampling when testing controls.
Monetary unit sampling objective
The primary objective of monetary unit sampling.
Representative samples selection
How an auditor can increase the chances that systematically selected samples are representative of the population.
Sampling method
The sampling method that allows an auditor to measure the risk of making an incorrect inference about the population from which the sample is taken.
Illegal Act
Acts of omission or commission by an entity, intentional or unintentional, contrary to laws or regulations
Projected Misstatements
Misstatement type based on auditor's estimate of total misstatements in a population from audit sample
Loss Contingency Disclosure
Required by GAAP when contingent loss is probable or exposure exceeds accrued amount
Subsequent Event Treatment
Disclose and adjust in year-end financial statements for major business decisions after balance sheet date
Policies for Loss Contingencies
Responsibility of management to design policies in line with GAAP
Analytical Procedures
Procedures aiding auditor in forming conclusions on financial statement consistency
Engagement Quality Review
Risk-based review evaluating significant judgments and conclusions by audit team
Noncompliance
Acts contrary to laws or regulations, intentional or unintentional
Client's vs Auditor's Estimate
Auditor should gather evidence to resolve differences and use the more appropriate estimate
Type I vs Type II Subsequent Events
Type I events require financial statement adjustment, while Type II events need footnote disclosures
Support Letter
Written evidence of management's financial support in a going concern evaluation
Illegal Act Disclosure
If material and undisclosed, auditor should issue an adverse opinion
Adverse Opinion on Internal Controls
Issued when there is one material weakness in internal controls over financial reporting
Scope Limitation Cause
Scenario like destruction of accounting records leading to a scope limitation
Unqualified Report Condition
Requires adequate financial statement disclosures for issuing an unqualified report
Scope limitation that is material but not pervasive
Qualified
Basic principle of audit reporting according to the AICPA
The purpose of an audit is to enhance the degree of confidence that users can place in the financial statements.
Audit report paragraph for disclosing all substantive reasons for issuing a qualified report
Scope paragraph
Auditor's opinion for a going concern issue
Unqualified with emphasis-of-matter paragraph
Agency that will only accept an unqualified opinion
Public Company Accounting Oversight Board (PCAOB)
Departure from financial reporting framework that is material and pervasive
Adverse
Difference between auditor's report on nonpublic and public companies
The auditor's report for nonpublic companies includes a paragraph referencing the audit of internal controls.
Primary concern about the shipping policy of a supply company
The amount of the client's inventory stored at the retailer's location
Management assertion for reviewing disbursement records for related liability
Completeness
Insignificant account to the acquisition and payment cycle but of interest to an auditor
Income tax expense
Fraud trend relating to the overstatement of inventory
Ending inventory increasing faster than sales trends
Objective addressed by using prenumbered receiving reports
Recorded accounts payable are for approved purchases.
Procedure for high fraud risk in accounts payable
Send blank confirmations to vendors
Internal control weakness allowing manipulation of goods receipt
Receiving documents are manually numbered by employees.
Internal control to mitigate risk of kickback arrangements with vendors
Require purchasing agents to conduct sealed competitive bids for large purchases
Document to review for authorized purchase of goods or services
Requisition
Activity in the acquisition and payment cycle
Create requisition for goods
Management assertion addressed when determining if inventory balances include all transactions
Completeness
