ACC 323 Exam 1 Knowledge Check Vocabulary Flashcards

Vocabulary practice flashcards generated from the ACC 323 Exam 1 Knowledge Check covering key definitions and concepts across Chapters 1, 2, 3, 4, and 6.

Audit

A systematic process covered in Chapter 1 defined by key components including evidence, information, report, degree of correspondence, criteria, competence, and independence.

Evidence

One of the fundamental components included in the official definition of an audit in Chapter 1.

Information

A core component of the definition of an audit referring to the subject matter being evaluated.

Report

A primary component of the definition of an audit that communicates the auditor's findings and opinion.

Degree of correspondence

A component of the definition of an audit that evaluates how closely the information aligns with established criteria.

Criteria

The established benchmarks or standards (such as GAAP) used as a component of an audit to evaluate information.

Competent

A component of the definition of an audit requiring the auditor to possess the requisite qualifications and skill.

Independent

A critical quality and component of the audit definition requiring the auditor to remain objective and unbiased.

Accounting

The process of recording, classifying, and summarizing economic events, contrasted with auditing in Chapter 1.

Assurance services

An independent professional service that improves the quality of information for decision makers, defined in Chapter 1.

Attestation services

A category of assurance services in which the CPA firm issues a report about the reliability of an assertion made by another party.

Information risk

The risk that information upon which a business decision was made was inaccurate; a risk directly impacted by an audit.

Business risk

The risk that an entity will fail to meet its objectives and become unable to remain in business.

Risk-free interest rate

The rate of return on risk-free investments, identified as a risk concept in Chapter 1.

American Institute of Certified Public Accountants (AICPA)

The professional organization that sets auditing standards for nonpublic clients.

Generally Accepted Auditing Standards (GAAS)

Auditing standards followed by auditors when conducting audits of nonpublic clients.

Generally Accepted Accounting Principles (GAAP)

The established criteria and accounting standards used in the preparation of financial statements.

Public Company Accounting Oversight Board (PCAOB)

The regulatory board that establishes auditing standards for public clients and oversees public company audits.

Securities and Exchange Commission (SEC)

The federal agency responsible for regulating public securities markets and financial reporting.

Sarbanes-Oxley Act (SOX)

Legislation that redefined management and auditor responsibilities and established the PCAOB.

Audit Committee

A committee of the board of directors responsible for overseeing financial reporting and auditor independence.

Direct financial interest

Ownership of stock or other equity shares in a client by a covered member or their immediate family, which impairs independence.

Indirect financial interest

A close, but non-direct, financial relationship with a client (e.g., non-material ownership of mutual funds holding client stock).

Independence of mind

The state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment; also called independence in fact.

Independence in appearance

The avoidance of facts and circumstances that would cause a reasonable third party to conclude that integrity or objectivity has been compromised.

Independence in fact

The actual state of mind and objectivity maintained by an auditor during an engagement.

AICPA Code of Professional Conduct Independence Rule

A professional rule governing independence containing two key components and listing six prohibited independence issues.

Covered member

An individual or firm entity that must comply with AICPA independence rules and requirements.

Adverse opinion

An audit opinion issued when the financial statements as a whole are materially and pervasively misstated.

Disclaimer of opinion

A report issued when an auditor is unable to satisfy themselves that the overall financial statements are fairly presented due to a severe scope limitation or lack of independence.

Qualified opinion

An audit opinion issued when statements are fairly presented except for a specific material misstatement or scope limitation.

Unmodified opinion

A standard clean audit report issued for nonpublic clients indicating financial statements are fairly presented.

Unqualified opinion

A standard clean audit report issued for public clients indicating financial statements are fairly presented.

Explanatory language

Additional text added to an unmodified or unqualified audit report under five specific circumstances.

Emphasis-of-matter

A type of explanatory paragraph added to an audit report to emphasize a matter appropriately presented or disclosed in the financial statements.

Other matter

A type of explanatory paragraph added to an audit report referring to a matter other than those presented or disclosed in the financial statements.

Clean opinion

An informal term for an unmodified (nonpublic) or unqualified (public) audit opinion.

Critical audit matters

Matters arising from the current period audit that were communicated to the audit committee, relate to material accounts, and involved especially challenging judgment.

Material misstatement

An error or fraud in financial statement data significant enough to influence the decisions of a reasonable user.

Pervasive material misstatement

A material misstatement that affects a substantial portion of the financial statements or is fundamental to user understanding.

Material

A threshold level of misstatement evaluated quantitatively and qualitatively to determine audit opinions.

Immaterial

A misstatement level so insignificant that it would not affect user decisions or require audit report modification.

Cycle approach

A method of segmenting an audit into closely related types of transactions and account balances.

Management assertions

Implied or expressed representations by management regarding classes of transactions, account balances, and disclosures (including five specific assertions under the PCAOB).

Error

An unintentional misstatement of financial statements.

Fraud

An intentional misstatement of financial statements, encompassing misappropriation of assets and fraudulent financial reporting.

Misappropriation of assets

A form of fraud involving the theft of an entity's assets.

Fraudulent financial reporting

A form of fraud involving intentional misstatements or omissions of amounts or disclosures in financial statements.

Noncompliance with laws and regulations

Illegal acts or violations committed by a client for which auditors have specific evaluation and reporting responsibilities.

Professional skepticism

An attitude that includes a questioning mind and a critical assessment of audit evidence, consisting of two primary components.

Auditor assertions

Assertions or evaluations formulated by auditors regarding the fairness of financial statement presentation.

Reasonable assurance

A high, but not absolute, level of certainty provided by an auditor that financial statements are free of material misstatement.