Audit CPA Exam - Glossary (NF)

terms / definitions

Account Balances

One of three categories of financial statement assertions, relating primarily to assets, liabilities, and equity interests.

Accounting Estimate

An approximation of a financial statement element, item, or account used because data either is not readily available or is dependent upon the outcome of future events.

Accounts Payable Confirmation

A request for independent verification of payables.

Accounts Receivables

A request for independent verification of receivables. Note that confirming AR is a required, generally accepted auditing principle.

Accuracy

A financial statement assertion in the “transaction and events” category indicating that amounts and other data relating to recorded transactions and events have been recorded properly.

Accuracy and Valuation

Assertions related to the truthfulness of financial statement amounts and their appropriate representation. This includes confirming that asset values are accurate and properly stated.

Adverse Opinion

An auditor’s report stating that the financial statements “do not present fairly”

Aging Schedule

A listing of AR categorized by age

Agreed Upon Procedures

An attestation engagement in which a practitioner performs specific procedures on underlying subject matter or subject matter information and reports the findings without providing an opinion or conclusion.

AICPA Code of Professional Conduct

Guidelines for the behavior of members of the AICPA in the conduct of their professional affairs.

Allowance for Sampling Risk

In sampling, a “cushion” for protection against undetected deviations that is added to the sample deviation rate to arrive at the upper deviation rate

Analytical Procedures

Evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data

Applicable Financial Reporting Framework

The financial reporting standards and regulations that govern how financial statements are prepared and presented by an entity

Appropriateness of Audit Evidence

The measure of the relevance and reliability of audit evidence in providing support for auditor conclusions

Articles of Incorporation

A document filed with the state to create a corporation

Assertion Based Examination

An attestation engagement in which the practitioner obtains reasonable assurance by obtaining evidence about the responsible party’s measurement or evaluation of the underlying subject matter against criteria in order to be able to draw reasonable conclusions about whether the subject matter is in accordance with or based on the criteria or the responsible party’s assertion is failed

Assumption of Responsibility

A situation in which the group engagement partner decides to assume responsibility for the work performed by a component auditor, and therefore does not refer to the component auditor in the auditor’s resport

Attest Engagements

An engagement in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party.

Attestation Risk

In an examination or review attest engagement, attestation risk is the risk that the practitioner expresses an inappropriate opinion or conclusion, respectively, when the subject matter information or assertion is materially misstated

Attribute Sampling

A statistical sampling method used to estimate the rate of occurrence of a specific characteristic or attribute in a population

Attributes of Risk

Four characteristics used in analyzing risk: type, significance, likelihood, and pervasiveness

Audit

A methodical review and objective examination of an enterprise's financial statements

Audit Comittee

A committee of the board of directors, generally made up of three to five members of the board who are "outside directors;" responsible for the selection and appointment of the independent external auditor, and for reviewing the nature and scope of the engagement

Audit Data Analytics

ADAs involve analyzing patterns, identifying anomalies, and extracting other useful information in data underlying or related to the subject matter of an audit through analysis, modeling, and visualization

Audit Plan

A listing of audit procedures necessary to accomplish the objectives of the audit; required for every audit

Audit Risk

The risk that an auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated

Audit Risk of Noncompliance

The risk that the auditor may unknowingly fail to appropriately modify the opinion on compliance in a compliance audit. It comprises the risk of material noncompliance and detection risk of noncompliance

Audit Sampling

The testing of less than 100 percent of the items within an account balance or class of transactions in order to evaluate some characteristic of the balance or class

Audit Strategy

An overall plan for the audit, typically used to develop the more detailed audit plan

Bank Confirmation

An independent bank verification of year-end bank balances; also may provide information regarding loans, contingent liabilities, discounted notes, pledged collateral, and guarantees or security agreements

Bank Reconciliation

A schedule that compares the cash balance reported by the bank with the cash balance reported by the client, and explains any differences

Bill of Lading

A shipping document issued by a carrier evidencing receipt of goods and terms of transport

Blank Confirmation

A confirmation in which the recipient is requested to fill in the balance

Block (Cluster) Sampling

In sampling, the selection of groups of adjacent items

Classification

A financial statement assertion in the "trans­actions and events" category indicating that trans­actions and events have been recorded in the proper accounts

Classification and Understandability

A financial statement assertion in the "transactions and events" category indicating that financial information is appropriately presented and described and disclosures are clearly expressed

Combined Approach

An audit approach in which both tests of the operating effectiveness of controls and substantive procedures are used. If controls are operating effectively, less assurance will be required from substantive procedure

Completeness

A financial statement assertion appearing in all three assertion categories and indicating that all transactions, events, assets, liabilities, and equity interests that should have been recorded have been recorded, and that all disclosures that should have been included in the financial statements have been included

Component

An entity or business activity that prepares financial information that is included in the group financial statements in the audit of a nonissuer

Component Auditor

An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit of a nonissuer. A component auditor may be part of the group engagement partner's firm, a network firm, or another firm

Components of Internal Control

Interrelated elements of the system of internal control used to achieve an entity's objectives; control components consist of: control environment, risk assessment, information and communication systems, monitoring, and (existing) control activities

Confidence Level

In sampling, a measure of how certain the auditor wants to be that his or her results are accurate. Note that the confidence level plus the risk of being ineffective equals 100 percent

Confirmation

A direct written response to the auditor from a knowledgeable external source in paper or electronic form or another medium

Consigned Goods

Goods belonging to one party that are held for sale by another party; the seller does not pay the owner until the goods have been sold

Contingency

An event that may, but is not certain to, occur. A loss contingency that is probable and that can be reasonably estimated should be reflected in the accounts

Contingent Fee

A fee established for performing services when no fee is charged unless a specific finding or result is obtained, or the fee amount is dependent upon the finding or result obtained

Control Deficiency

A weakness that exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis