GAAs terms and definitions

Applicable Financial Reporting Framework

The financial reporting framework adopted by management that is acceptable in view of the nature and objectives of the financial statements or is required by law or regulation.

Financial Reporting Framework

A set of criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in the financial statements.

Fair Presentation Framework

A financial reporting framework that requires compliance with its requirements and acknowledges that departures or additional disclosures may be necessary for fair presentation.

General-Purpose Framework

A financial reporting framework designed to meet the common financial information needs of a wide range of users.

Special-Purpose Framework

A financial reporting framework other than GAAP, such as cash, tax, regulatory, or contractual basis accounting.

Assertions

Representations by management embodied in the financial statements that auditors use to consider potential misstatements.

Relevant Assertion

A financial statement assertion that has a reasonable possibility of containing a material misstatement.

Audit Evidence

Information used 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.

Appropriateness of Audit Evidence

The measure of the quality of audit evidence, including relevance and reliability.

Audit Risk

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

Risk of Material Misstatement (RMM)

The risk that the financial statements are materially misstated prior to the audit.

Inherent Risk

The susceptibility of an assertion to a material misstatement before consideration of related controls.

Control Risk

The risk that a material misstatement will not be prevented, detected, or corrected on a timely basis by internal control.

Detection Risk

The risk that audit procedures will not detect a material misstatement that exists.

Professional Responsibilities

The degree of responsibility imposed by US GAAS, including unconditional and presumptively mandatory requirements.

Professional Judgment

The application of relevant training, knowledge, and experience to make informed decisions during the audit.

Professional Skepticism

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

Management

The person(s) with executive responsibility for the conduct of the entity's operations.

Those Charged With Governance

The persons or organizations responsible for overseeing the strategic direction and accountability of the entity.

Historical Financial Information

Information expressed in financial terms about past economic events or conditions of an entity.

Financial Statements

A structured representation of historical financial information, including related notes, prepared in accordance with a financial reporting framework.

Interpretive Publications

Auditing interpretations of US GAAS, exhibits to US GAAS, AICPA Audit and Accounting Guides, and AICPA Auditing Statements of Position.

Other Auditing Publications

Publications other than interpretive publications.

Premise on Which an Audit Is Conducted

Management's acknowledgment of responsibilities fundamental to conducting an audit under US GAAS.

Unconditional Requirements

Requirements that use the word "must" and with which an auditor must comply when relevant.

Presumptively Mandatory Requirements

Requirements that use the word "should" and with which an auditor is expected to comply unless rare circumstances justify departure.

Reasonable Assurance

A high, but not absolute, level of assurance in an audit.

Misstatement

A difference between a reported financial statement item and what is required by the applicable financial reporting framework.

Inherent Limitations of an Audit

Factors that prevent an auditor from obtaining absolute assurance that the financial statements are free from material misstatement.

AR = RMM × DR

Audit Risk equals Risk of Material Misstatement multiplied by Detection Risk.

RMM = IR × CR

Risk of Material Misstatement equals Inherent Risk multiplied by Control Risk.