Auditing Theory CPA Exam Review

A collection of vocabulary flashcards covering key concepts and terminology related to auditing theory and practices that are essential for CPA review.

Independent Audit

An audit conducted by an outside party to provide a reasonable assurance that financial statements are presented fairly.

Internal Control

Processes designed to provide reasonable assurance regarding the achievement of operational, reporting, and compliance objectives.

Assurance Engagement

An agreement in which a practitioner issues a conclusion that enhances the degree of confidence for the intended users about the reliability of the subject matter.

Material Misstatement

A significant error or omission in financial statements that could influence the economic decisions of users.

Quality Control Standards

Policies and procedures established to ensure that audit practices are conducted according to professional and regulatory requirements.

Fraud Risk Factors

Conditions or situations that increase the risk of fraudulent financial reporting.

Audit Evidence

All information used by the auditor in arriving at the conclusions on which the audit opinion is based.

Detection Risk

The risk that an auditor's substantive procedures will not detect a material misstatement that exists in an account balance or class of transactions.

Control Risk

The risk that a misstatement due to error or fraud could occur in a relevant assertion and not be prevented or detected on a timely basis by the entity's internal control.

Professional Skepticism

An attitude that includes a questioning mind and a critical assessment of audit evidence.

Substantive Procedures

Audit procedures designed to detect material misstatements at the assertion level.

Audit Risk Model

A formula that expresses audit risk as a function of inherent risk, control risk, and detection risk.

Engagement Letter

A document that outlines the scope and terms of an agreed-upon service between the auditor and the client.

Evidence Requirements

Standards that outline how much and what type of evidence is necessary to support an audit opinion.

Audit Report Types

Various conclusions an auditor can provide regarding the financial statements, including unqualified, qualified, adverse, and disclaimer opinions.