Auditing Vocab Flashcards
Top-side journal entries
-These are adjusting journal entries that are not automatically recorded using the company’s book-keeping software
-these entries are manually entered by an individual outside of the regular course of producing the financial statements.
Sarbanes-Oxley Act of 2002
Broad legislation mandating new standard setting for audits of public companies and new standards for corporate governance.
Red flags
Risk factors suggesting a heightened risk of fraud.
Rationalization
The mental process that fraudsters employ to ‘live with themselves’ as they try to convince themselves that what they are doing is not wrong or is in some way justifiable.
Professional skepticism
-An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Ponzi scheme
This type of fraud occurs when the deposits of current investors are used to pay returns on the deposits of previous investors; no real investment is happening.
Opportunity
The internal control weakness that enables the fraudster to commit and conceal the fraud.
International Financial Reporting Standards (IFRSs)
A set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB).
International Accounting Standards Board (IASB)
-An independent, private-sector body that develops and approves International Financial Reporting Standards (IFRSs).
-The IASB was formed in 2001 and replaced the International Accounting Standards Committee.
Incentive
The underlying reason for a fraudster to commit fraud.
Generally Accepted Accounting Principles (GAAP)
-GAAP refers to generally accepted accounting principles for financial reporting.
- has general acceptance
- provides criteria to assess the fairness of a financial statement presentation.
Fraud triangle
A model that recognizes that incentives, opportunities, and rationalization are elements typically associated with fraud.
Fraud brainstorming
A formal discussion among the audit engagement team members about the possibility of fraud, including a fraud risk assessment.
Fraudulent financial reporting
-manipulation of reported financial results to misstate the economic condition of the organization.
Financial Accounting Standards Board (FASB)
-independent, private-sector, not-for-profit organization
-establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP).
Corporate governance mosaic
Each of the parties with responsibilities in terms of corporate governance has complementary roles and specific responsibilities
Cooling-off period
A one-year period of time during
-registered accounting firms may not perform audits whose CEO, CFO, controller, chief accounting officer or other equivalent position was employed by the accounting firm.
Corporate governance
-owners and creditors of an organization exert control and require accountability for the resources entrusted to the organization.
-The owners (stockholders) elect a board of directors to provide oversight and accountability
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
-A joint initiative among five private-sector organizations
-combats corporate fraud by guiding organizations in terms of business ethics, internal control, enterprise risk management, fraud, and financial reporting.
board of directors
The major representative of stockholders to help ensure that the organization is run according to the organization’s charter and that there is proper accountability.
audit committee
-subcommittee of the board of directors
-monitors audit activities and serves as a surrogate for share holders.
-should be composed of outside memebers
asset misappropriation
-fraud that involves the theft or misuse of an organization assets. examples include skimming cash, stealing inventory and payroll fraud.
