ACCT 460 _ EXAM 1 COURSE PACKET

Auditing Course Packet

Auditing

The accumulation & evaluation of evidence about info to determine & report on the degree of correspondence between the info & established criteria.

Reasonable Assurance

A level of assurance that financial statements are free of material misstatement, whether due to error or fraud, achieved by auditors during the audit process.

Material Misstatement

Incorrect information within the financial statements that is likely to influence a reasonable person's decisions.

Professional Skepticism

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

Independence in Fact

The auditor's actual state of mind; being unbiased and objective in conducting the audit.

Independence in Appearance

How users perceive the auditor's independence; appearing unbiased to external decision-makers.

Form AP

A form adopted by the PCAOB that requires registered audit firms to disclose the names of engagement partners and other participating accounting firms.

Client Management Responsibilities

The duty of management to prepare financial statements in accordance with applicable reporting frameworks, along with establishing internal controls.

Audit Committee

A committee responsible for oversight of the audit process, including the hiring, firing, and compensation of external auditors.

Sarbanes-Oxley Act

A law enacted in 2002 aimed at enhancing corporate financial reporting and accountability, particularly for publicly traded companies.

Public Company Accounting Oversight Board (PCAOB)

An organization established by the Sarbanes-Oxley Act to oversee the audits of public companies in order to protect investors.

Qualified Report

An audit report indicating that part of the financial statements is not fairly presented according to the applicable financial reporting framework.

Adverse Report

An audit opinion stating that the financial statements as a whole are not presented fairly in accordance with applicable financial reporting framework.

Disclaimer of Opinion

An auditor’s statement that they cannot express an opinion on the financial statements due to a significant scope limitation or lack of independence.

Management Assertions

Statements made by management regarding the accuracy and completeness of financial statements that auditors evaluate.

Audit Evidence

The information collected by auditors to support their opinions on the financial statements, which must be sufficient and appropriate.

Types of Evidence

Includes physical examination, inspection, confirmations, analytical procedures, client inquiries, recalculation, and re-performance.

Physical Examination

Auditor's direct observation or count of tangible assets.

Confirmation

A process of obtaining a direct response from a third party verifying certain information.

Analytical Procedures

The evaluation of financial information through analysis of plausible relationships among financial and nonfinancial data.

Audit Documentation

Record of the audit procedures performed, evidence obtained, and conclusions reached, which must be retained for a minimum period.

Existence Assertion

Management's assertion that assets or liabilities exist at a given date and recorded transactions occurred during a given period.

Completeness Assertion

Management's assertion that all transactions and accounts that should be included in financial statements are actually included.

Valuation Assertion

Management's assertion that asset, liability, equity, revenue, and expense components have been recorded at appropriate amounts.

Rights and Obligations Assertion

Management's assertion that the company holds rights to its assets and liabilities are obligations of the company.

Presentation and Disclosure Assertion

Management's assertion that the components of the financial statements are properly classified and disclosed.

Flowchart Walkthrough

A step-by-step process to determine the appropriate audit opinion based on auditor independence, adherence to GAAP, and presence of material misstatements.

Critical Audit Matters

Any audit matter that was communicated or required to be communicated to the audit committee and relates to accounts or disclosures that are material to the financial statements.

Partner Responsibility

The accountability of partners in a CPA firm for their actions and for those they supervise, distinct from other partners.

Audit Quality

The degree to which an audit meets established standards and provides sufficient support for the audit opinion.