Audit basics and Engagement Planning Flashcards
Compliance Audit
An examination performed to determine if an entity is in compliance with the terms of an agreement, such as a loan agreement or bond indenture agreement; or with laws and regulations to which it is subject.
Operational Audit
An examination of an entity’s operating procedures to evaluate their efficiency and effectiveness in meeting the entity’s objectives. Often performed by internal auditors.
Financial Statement Audit
An examination of financial information to determine if financial statements are presented fairly in accordance with an applicable financial reporting framework.
Applicable Financial Reporting Framework
A comprehensive set of principles and standards that prescribe how financial statement elements that result from an entity’s transactions, events, and circumstances are to be recognized, measured, and disclosed, including a general purpose framework and a special purpose framework.
General Purpose Financial Reporting Framework
A financial reporting framework designed to meet the general needs of financial statement users, involving a comprehensive set of measurement, recognition, and disclosure principles achieving wide acceptance,
such as GAAP, International Reporting Standards (IFRS), or the pronouncements of the GASB and FASAB
Special Purpose Framework
A financial reporting framework (FRF) that is not a general purpose framework and is designed to meet the specific needs of those familiar with the framework and how it is used to evaluate an entity’s financial position or performance,
such as a cash basis, tax basis, regulatory agency basis, contractual basis, or other basis of accounting.
Also known as an other comprehensive basis of accounting (OCBOA).
Auditing Standards
A framework of guidelines established by an appropriate authoritative body, such as the PCAOB for issuers or the Auditing Standards Board (ASB) for nonissuers, to be followed by an auditor to make certain that the objectives of the engagement are met.
Auditing Procedures
The actions taken by the auditor to obtain sufficient appropriate audit evidence in support of the conclusions on which the auditor’s opinion is based.
Generally Accepted Auditing Standards (GAAS)
The body of authoritative audit literature established by the Auditing Standards Board of the AICPA to be applied in the audits of financial statements of nonissuer (nonpublic) companies and against which the quality of audits are measured and judged.
Predecessor Auditor
The independent CPA who performed or was engaged to perform an audit of a new audit client’s financial statements from its most recent prior period.
Professional Skepticism
An attitude that includes a questioning mind and a critical assessment of audit evidence, with an alertness for conditions that may indicate a material misstatement—
being alert to contradictory information from different sources, to the possibility that documentary evidence may not be reliable, to the possibility that the client is being dishonest when providing information, and to indications of fraud.
Independence
An auditor’s ability to perform without compromising professional judgment and act with integrity, objectivity, and professional skepticism, consisting of independence of mind (fact) and independence in appearance, required for the performance of attest engagements.
Independence is considered to be impaired, for instance, if a direct or a material indirect financial interest is held by the auditor or family member.
Due Professional Care
Applying a level of care to the performance of work that would be expected of a professional with comparable qualifications, enabling an auditor to act without negligence, with skill and due diligence.
Reasonable Assurance
The degree of assurance provided by an audit opinion representing a high degree of assurance, but not absolute assurance. Reasonable assurance indicates a high degree of reliability without indicating perfection, and is supported by sufficient, appropriate audit evidence gathered.
Those Charged with Governance
The individuals or parties responsible for overseeing the strategic direction of an entity and obligations related to accountability—generally the board of directors, although often limited to the audit committee.
