Auditing & Assurance Services, Chapter 3

Analytical procedures

Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data.

Audit committee

A subcommittee of the board of directors that is responsible for the financial reporting and disclosure process.

Audit procedures

Specific acts performed as the auditor gathers evidence to determine if specific audit objectives are being met.

Audit strategy

The auditor's plan for the expected conduct, organization, and staffing of the audit.

Auditor specialist

An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence. An auditor's specialist may be either an auditor's internal specialist (who is a partner or staff, including temporary staff, of the auditor's firm or a network firm) or an auditor's external specialist.

Dual-purpose tests

Tests of transactions that both evaluate the effectiveness of controls and detect monetary errors.

Engagement letter

A letter that formalizes the contract between the auditor and the entity and outlines the responsibilities of both parties.

Illegal act

A violation of laws or government regulations.

Internal audit function

An independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Overall materiality (Planning materiality)

The maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of users.

Substantive procedures

Audit procedures performed to test material misstatements in an account balance or disclosure component of the financial statements.

Substantive tests of transactions

Tests to detect errors or fraud in individual transactions.

Tests of controls

Audit procedures performed to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level.

Tests of details

Substantive tests that concentrate on the details of items contained in the account balance and disclosure.

Tolerable misstatement (Performance materiality)

The amount of the overall materiality that is used to establish a scope for the audit procedures for the individual account balance or disclosures.