Audit vocabulary Flashcards
Internal Controls
- Physical controls
- Authorisation and approval limits
- Segregation of Duties
- Management controls
- Arithmetic and accounting controls
- Human resources controls
Physical controls
- Restrictions on access to buildings, specified office or factory areas or equipment, such as turnstiles at the entrance to the premises, swipe cards and passwords.
- Restraints to prevent removal.
Authorisation and approval limits
Adhere to authorisation limits usually be specified in the terms of role.
E.G. junior manager may purchase stationary up to €250, but purchases more than this have to be approved by someone more senior.
Segregation of Duties
Spread duties across more than one person to avoid manipulation.
When receiving cash by post, the employee recording the cash will be a different person to the one who opens the post.
Management controls
Controls operated by managers themselves.
An example is variance analysis where a manager is required to consider differences between planned performance and actual performance.
Arithmetic and accounting controls
Ensure accurate recording and processing of transactions, for example by reconciling trial balances.
Human resources controls
Implemented as part of human resources management.
E.G. Verification of qualifications and references.
Balance tests
- Completeness
- Rights
- Obligations
- Presentation & disclosure and classification
- Measurement
- Occurrence
- Valuation
- Existence
Balance tests
- Completeness
All transactions and events that should have been recorded have been recorded.
Balance tests
- Rights
The entity holds or controls the rights to assets.
Balance tests
- Obligations
Liabilities are the obligations of the entity.
Balance tests
- Presentation & disclosure and classification
Are in accordance disclosure with the applicable reporting framework.
Balance tests
- Measurement
Amounts and other data relating to recorded transactions and events have been recorded appropriately in the proper accounts.
Balance tests
- Occurrence
Transactions and events that have been recorded have occurred and pertain to the entity.
Balance tests
- Valuation
The appropriate assets, liabilities and equity interests are included in the carrying value financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
Balance tests
- Existence
Assets, liabilities and equity interests exist.
Assertions about classes of transactions and events
- Classification
- Occurrence
- Completeness
- Accuracy
- Cut-off
Assertions about classes of transactions and events
- Occurrence
Transactions and events that have been recorded have occurred
Assertions about classes of transactions and events
- Completeness
All transactions and events that should have been recorded have been recorded
Assertions about classes of transactions and events
- Accuracy
Amounts have been appropriately recorded
Assertions about classes of transactions and events
- Cut-off
Recorded in the correct period
Assertions about classes of transactions and events
- Classification
Recorded in the proper accounts
Assertions about account balances at the period end
- Existence
- Rights and obligations
- Completeness
- Valuation and allocation
Assertions about presentation and disclosure
- Occurrence and rights and obligations
- Completeness
- Classification and understandability
- Accuracy and valuation
Category 1 and 2 offences examples
- failure to keep adequate accounting records (Section 286);
- financial statements do not give a true and fair view (Sections 291 to 295);
- loans to directors or connected persons (Section 248);
- financial assistance for the acquisition of shares (Section 82); and
- approval of financial statements which do not give a true and fair view (Section 324(6)).
Auditors obliged to notify the Director of Corporate Enforcement of their opinion immediately when there are reasonable grounds to believe that a Category 1 or 2 offence may have been committed.
Analytical Procedure
A comparison of financial statement amounts with an auditor’s expectation.
An example is to compare actual interest expense for the year (a financial statement amount) with an estimate of what that interest expense should be.
Arm’s Length Transactions
Transactions between people who have no relationship other than that of buyer and seller.
The price is the true fair market value of the goods or services sold.
If you buy or sell something to a close relative, you might give better terms than to an unrelated party, so the price might not represent the true market value of the goods or services.
Assurance
The level of confidence one has.
Audit Adjustment
Correction of a financial information misstatement identified by the auditor, whether recorded or not.
Audit Engagement
An agreement between an organisation and an auditor in which the auditor has been engaged to perform certain procedures related to determining whether the financial information reported by an organisation is reasonably accurate.
Audit Evidence
Facts gathered during the audit procedures that provide a reasonable basis for forming an opinion regarding the financial statements under audit.
Audit Objective
In obtaining evidence in support of financial statement assertions, the auditor develops specific audit objectives in light of those assertions.
For example, an objective related to the completeness assertion for inventory balances is that inventory quantities include all products, materials, and supplies on hand.
Audit Risk
The risk of forming an inappropriate opinion on the financial statements under audit.
Business Risks
Risks that could adversely affect an entity’s ability to achieve its objectives and execute its strategies or from the setting of inappropriate objectives and strategies.
Capitalised
Recorded as a non-current asset
Control Risk
The risk that a company’s internal controls won’t detect or prevent mistakes.
Cut-off
Designating a point of termination.
An auditor uses tests of cut-off to obtain evidence that transactions for each year are included in the financial statements of the appropriate year.
Detection Risk
Risk that audit procedures will lead to a conclusion that material error does not exist when in fact such error does exist.
Due professional care
Taking the time to gather reasonable audit evidence to support the fact that the financial statements are free of material misstatement.
Evidence
Written and electronic information (such as checks, records of electronic fund transfers, invoices, contracts, and other information) that permits the auditor to reach conclusions through reasoning.
Fieldwork
A scheduled period of time when auditors are usually onsite at an organisation’s offices for the purpose of performing audit procedures.
Generally Accepted Accounting Principles (GAAP)
Standard accounting guidelines for reporting financial statement transactions.
Going Concern
The expectation that a business will remain operating for at least another 12 months. - Independence
Having an arm’s-length relationship
Meaning no special or close relationship with the client under audit.
Inherent Risk
The likelihood of arriving at an inaccurate audit conclusion based on the nature of the client’s business.
Inquire
Ask questions of client personnel.
Inspect
An audit procedure, to scrutinise or critically examine a document.
As part of a firm’s quality control system, a procedure to monitor the effectiveness of the system.
Internal Controls
The operating standards a client uses to prevent or uncover mistakes.
Kiting
Drawing a check on insufficient funds to take advantage of the time required for collection.
Lapping
A scheme to cover an embezzlement by using payments made by one customer to reduce the receivables balance of another customer.
Lead Schedule
The schedule at the beginning of audit documentation that summarises the detailed schedules.
Management Assertions
Representations the managers of a company make on the financial statements.
Materiality
The importance placed on an area of financial reporting based on its overall significance.
Misstatement
The difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework.
Objectivity
The ability to evaluate client records with no preconceived notions or prejudices.
Adverse opinion
An audit opinion that the financial statements as a whole are not in conformity with GAAP.
Opinion - Disclaimer
A statement that the auditor is unable to express an opinion as to the presentation of financial statements in conformity with GAAP
“Except for” opinion
A qualified opinion.
An auditor can qualify the audit opinion for both departures from GAAP and restrictions on the scope of the audit.
The opinion paragraph of the qualified report is worded “In our opinion, except for…”
Qualified opinion
An audit opinion that the financial statements as a whole are presented in conformity with GAAP, with the exceptions noted.
Unqualified opinion
An audit opinion that the financial statements are in conformity with GAAP.
Types of auditors opinion
Adverse Disclaimer ''Except for'' Qualified Unqualified
Permanent File
Includes items of continuing accounting significance, such as the analysis of balance sheet accounts and contingencies.
Such information from a prior year is used in the current audit and updated each year.
Professional scepticism
Approaching an audit with a questioning mind-set.
Related Parties
Those with whom the client has a relationship that might destroy the self-interest of one of the parties (accounting is based on measurement of arm’s length transactions).
Sampling
Selecting a small but pertinent and representative number of records to represent the entire population of records.
Attribute Sampling
The characteristic tested is a property that has only two possible values (an error exists or it does not).
Random Sampling
Identical probability of each population item being selected for a sample
Sampling Error
Unless the auditor examines 100% of the population, there is some chance the sample results will mislead the auditor
Sampling Risk
The possibility that conclusions drawn from the sample may not represent correct conclusions for the entire population
Sampling - Stratify
To arrange a population or a sample in distinct layers.
Stratified sampling is used in auditing to select a greater percentage of accounts with high balances than of accounts with low balances.
Scope
The extent and boundaries of an audit.
A scope limitation is a restriction on the evidence the auditor can gather.
Those Charged with Governance
Person(s) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity.
Timing of Audit Testing
When the procedure is performed.
If you perform a test of balances procedure before year end there is a risk that internal controls are inadequate to provide assurance up through the balance sheet date.
Tolerable Misstatement
When planning a sample for a substantive test of details, the auditor considers how much monetary misstatement may exist without causing the financial statements to be materially misstated.
Trace
Follow a transaction through the steps of the system.
Valuation
An assertion made by management that each asset and liability is recorded at an appropriate carrying value.
Vouch
Prove accuracy of accounting entries by tracing to supporting documents.
Working Papers
Records kept by the auditor of procedures applied, tests performed, information obtained, and pertinent conclusions in the engagement.
