Nature, Objective and Scope of Audit

This set of vocabulary flashcards covers the fundamental concepts, standards, and definitions regarding the nature, objective, and scope of auditing as defined by the ICAI curriculum.

Audit

An independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.

Independence

A condition where the judgement of a person is not subordinate to the wishes or direction of another person who might have engaged him, increasing the auditor's ability to act objectively without biases.

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The Standard on Auditing titled 'Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing'.

Reasonable Assurance

A high level of assurance, but not a complete guarantee, obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.

Absolute Assurance

A complete guarantee that the financial statements are free from material misstatements, which is not possible in an audit due to inherent limitations.

Inherent Limitations of Audit

Inbuilt constraints arising from the nature of financial reporting, the nature of audit procedures, the timeliness of financial reporting, and the fact that an audit is not an official investigation.

Audire

The Latin word meaning 'to hear', from which the word 'audit' originates, reflecting medieval times when auditors heard accounts read to them.

Applicable Financial Reporting Framework

A framework adopted by management in the preparation and presentation of financial statements that is acceptable in view of the nature of the entity and the objective of the statements, such as Schedule III of the Companies Act, $2013$.

Historical Financial Information

Information expressed in financial terms in relation to a particular entity, derived primarily from that entity’s accounting system, about economic events occurring in past time periods.

Investigation

A critical examination of accounts with a special purpose, such as checking for suspected fraud, characterized by a specific and narrow scope compared to the general scope of an audit.

Engagement

A formal agreement between an auditor and a client under which the auditor agrees to provide auditing services, typically documented in an engagement letter.

Assurance Engagement

An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation of a subject matter against criteria.

Practitioner

A person who provides assurance; a term broader than 'auditor' because they may provide assurance on matters not necessarily related to historical financial information.

Suitable Criteria

The benchmarks used to evaluate the subject matter in an assurance engagement, such as accounting standards, guidance, laws, or rules.

Sufficient Appropriate Evidence

The information obtained by the practitioner where 'Sufficient' relates to the quantity of evidence and 'Appropriate' relates to the quality or relevance of the evidence.

Review Engagement

A limited assurance engagement that provides a lower level of assurance than an audit and involves fewer procedures, resulting in a moderate level of confidence.

Prospective Financial Information

Financial information based on assumptions about events that may occur in the future and possible actions by an entity, taking the form of a forecast or projection.

Standards on Auditing (SAs)

Engagement standards that apply specifically to the audit of historical financial information.

Standards on Review Engagements (SREs)

Engagement standards that apply in the context of the review of historical financial information.

Standards on Assurance Engagements (SAEs)

Engagement standards that apply to assurance engagements dealing with subject matters other than historical financial information, such as prospective financial information.

Standards on Related Services (SRSs)

Standards that apply to engagements involving agreed-upon procedures or compilation engagements where no assurance is expressed.

Standards on Quality Control (SQCs)

Standards that establish a firm’s responsibilities for its system of quality control for all services covered by engagement standards.

Comptroller and Auditor General of India (CAG)

An independent constitutional authority responsible for auditing government receipts and expenditures and appointing auditors for government companies.