Auditing: Planning, Risk, Evidence, and Sampling

Comprehensive vocabulary flashcards covering analytical review procedures, audit sampling methods and risks, the audit risk model, planning materiality, and audit evidence concepts.

Analytical Procedures (ISA 520)

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

Trend Analysis

An analytical review procedure that involves the analysis of the change of an account over time.

Ratio Analysis

An analytical procedure comparing relationships among financial statement balances or sets of transactions, focusing on more than one account balance.

Reasonableness Test

An analytical procedure using comparisons involving non-financial data to estimate an account balance, such as using employee counts to support payroll costs.

Audit Sampling (ISA 530)

The selection of less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class.

Representative Sample

A sample in which the characteristics in the sample items are approximately the same as those of the population, such that sampled items are similar to items not sampled.

Sampling Risk

The risk that an auditor reaches an incorrect conclusion because the sample is not representative of the population, caused by an inadequate sample size.

Non-sampling Risk

The risk that audit tests do not cover existing exceptions in the sample, caused by inappropriate or ineffective audit procedures.

Statistical Sampling

An audit sampling method that uses the laws of probability to compute sample size, quantify sampling risk, and evaluate results to reach a statistical conclusion.

Non-statistical Sampling

A judgmental sampling approach where the auditor does not use statistical techniques, but relies on professional judgment, firm guidance, and knowledge to determine sample size and reach a conclusion.

Block Sample Selection

A non-statistical sampling method where the auditor selects the first item in a block, and the remainder of the block is chosen in sequence.

Haphazard Sample Selection

The selection of population items without any conscious bias by the auditor and without regard to size or other distinguishing characteristics.

Directed Sample Selection

A non-statistical selection technique where the auditor deliberately selects each item in the sample based on judgmental criteria.

Systematic Sample Selection

A sampling technique involving a constant sampling interval where every $n^{\text{th}}$ item is selected from a randomly chosen starting point.

Monetary Unit Sampling (MUS)

A value-weighted sampling selection method where sample size, selection, and evaluation result in a conclusion expressed in monetary amounts.

Audit Risk

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

Acceptable Audit Risk (AAR)

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued.

Reasonable Assurance

The standard indicating that the auditor does not guarantee that all material misstatements will be detected, accepting some risk that a material misstatement could remain undetected.

Inherent Risk (IR)

The susceptibility of an assertion about a class of transaction, account balance, or disclosure to a material misstatement, assuming that there were no related internal controls.

Control Risk (CR)

The risk that internal control procedures will not prevent, or detect and correct, material errors or misstatements in account balances or classes of transactions on a timely basis.

Detection Risk (DR)

The risk that the auditor's substantive procedures and review of financial statements will fail to detect material errors.

Audit Risk Model

The model defining the relationship among audit risk components, expressed as $AR = IR \times CR \times DR$.

Materiality (ISA 320)

A threshold based on whether the omission or misstatement of information could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements as a whole.

Errors

Unintentional mistakes in financial statements, including clerical errors, misapplication of accounting principles, or oversight of facts existing during preparation.

Fraud

Intentional distortions of financial statements, such as deliberate management misrepresentations, record falsification, or misappropriation of assets.

Interim Audit

Audit procedures performed prior to the company's balance sheet date, typically focused on compliance testing and tests of controls.

Final Audit

Audit procedures performed on or after the company's balance sheet date, primarily involving substantive testing.

Audit Programme

A set of procedures and evidence-gathering steps necessary to obtain reasonable assurance that financial statements are not affected by material misstatements.

Audit Evidence (ISA 500)

The information obtained by the auditor in arriving at the conclusions on which the audit opinion is based.

Sufficiency of Audit Evidence

The measure of the quantity of audit evidence, primarily evaluated by sample size and corroborated findings.

Appropriateness of Audit Evidence

The measure of the quality of audit evidence, encompassing both its relevance to a specific assertion and its reliability.

Relevance of Audit Evidence

The attribute of evidence indicating that it logically supports the specific audit objective or management assertion (such as COVED) being tested.

Reliability of Audit Evidence

The degree to which evidence can be considered believable or worthy of trust, influenced by source independence, objectivity, provider qualification, and internal control effectiveness.

Test of Controls

An audit procedure 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 at the assertion level, comprising tests of details and substantive analytical procedures.