Auditing and Fraud: Practice Flashcards

Vocabulary-style flashcards based on lecture notes covering auditor detection patterns, fraud definitions, roles and responsibilities, ISA requirements, and going concern assessments.

Contract Testing

Reviewing supplier agreements for rebate conditions to detect patterns in earnings quality.

Analytical Procedures (Red Flag)

A comparison where profit is increasing while operating cash flow is flat ($\text{Profit } \text{↑} \text{ Cash } \text{→}$).

Fraud (ISA UK 240)

Intentional deception causing material misstatement through false representation, failure to disclose, or abuse of position.

Error

An unintentional misstatement in financial records.

Fraudulent Financial Reporting (FFR)

Deception involving fictitious or late journal entries, premature revenue recognition, or biasing estimates.

Misappropriation of Assets

Theft that is disguised within financial records.

The Expectation Gap

The difference between the public belief that auditors detect all fraud and the reality that auditors provide reasonable assurance based on sampling and persuasive evidence.

Qualitative Materiality

The concept that small timing manipulations are material if they flip a loss to a profit or affect covenants and bonuses.

Audit Committee

A body established by Management and TCWG (Those Charged With Governance) to design and monitor controls and handle internal audits.

Professional Scepticism

The auditor's duty to accept nothing at face value where risk is high, demand corroboration, and be alert to explanations that leave gaps.

J-E-U Mnemonic

The ISA (UK) 240 targeted response to management override: Journal entries, Estimates, and Unusual/significant transactions.

Scepticism Thermometer (High Level)

The level of scepticism required for high-risk, unusual, and fraud-prone areas such as period-end manual revenue journals.

Fraud Triangle

A framework for risk assessment consisting of Pressure/Incentive, Opportunity, and Attitude/Rationalization.

ISA (UK) 250

The standard regarding auditor obligations for laws and regulations, including direct effect laws like taxes and NOCLAR (Non-Compliance with Laws and Regulations).

Bribery Act 2010 Red Flags

Indicators such as 'consultancy fees' to offshore entities, facilitation payments, or unusual consultant arrangements.

Going Concern Time Horizon

The assessment period of at least $12$ months from the date of approval of the financial statements.

ISA UK 570

The auditing standard regarding Going Concern and the auditor's responsibility to evaluate management's assessment.

Reverse Stress Testing

A procedure in going concern testing that works backwards from failure to see what breaks the financial model.

MURGC

Material Uncertainty Related to Going Concern; an unmodified opinion paragraph describing a material uncertainty that has been adequately disclosed.

Working Capital Ratios

Analytic tools like payables days and receivables days used to detect red flags in financial performance.