Becker Glossary Flashcards
One of three categories of financial statement assertions, relating primarily to assets, liabilities, and equity interests.
Account Balances
An approximation of a financial statement element, item, or account used because data either is not readily available or is dependent upon the outcome of future events.
Accounting Estimate
A request for independent verification of payables.
Accounts Payable Confirmation
A request for independent verification of receivables. Not that confirming accounts receivable is a required, generally accepted auditing procedure.
Accounts Receivable Confirmation
A financial statement assertion in the “transactions and events” category indicating that amounts and other data relating to recorded transactions and events have been recorded properly.
Accuracy
A financial statement assertion in the “presentation and disclosure” category indicating that financial and other information are disclosed fairly and at appropriate amounts.
Accuracy and Valuation
A ratio that measures how effectively an enterprise is using its assets.
Activity Ratio
An auditor’s report stating that the financial statements “do not present fairly…”
Adverse Opinion
A listing of accounts receivable categorized by age (i.e., current, 30 to 60 days, 60 to 90 days, etc.).
Aging Schedule
An engagement in which a practitioner is engaged to issue a report of findings based on specific agreed-upon procedures.
Agreed-Upon Procedures
Guidelines for the behavior of members of the American Institute of Certified Public Accountants (AICPA) in the conduct of their professional affairs.
AICPA Code of Professional Conduct
In sampling, a “cushion” for protection against undetected deviations that is added to the sample deviation rate to arrive at the upper deviation rate.
Allowance for Sampling Risk
An IT (information technology) department employee who determines system requirements and designs a processing system to meet those requirements.
Analyst
Evaluations of financial information made by a study of plausible relationships among both financial and non-financial data.
Analytical Procedures
The financial reporting framework that is acceptable in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation.
Applicable Financial Reporting Framework
Information processing controls that apply to the processing of individual “applications” (e.g., controls surrounding receivables, controls surrounding payroll, etc.).
Application Controls
The quality of being both reliable (valid, factual, objective, and supportable) and relevant (related to the financial statement assertion under consideration).
Appropriate (Appropriateness of Audit Evidence)
A document filed with the state to create a corporation.
Articles of Incorporation
A declaration about whether a subject matter is based on or in conformity with selected criteria.
Assertion
A relationship that arises when an accountant consents to the use of his or her name in connection with financial statements, or when an accountant has prepared the financial statements.
Association with Financial Statements
A situation in which the group engagement partner decides to assume responsibility for the work performed by a component auditor, and therefore does not refer to the component auditor in the auditor’s report.
Assumption of Responsibility
An engagement in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party.
Attest Engagements
A statistical sampling method used to estimate the rate of occurrence of a specific characteristic or attribute in a population.
Attribute Sampling
Four characteristics used in analyzing risk: type, significance, likelihood, and pervasiveness.
Attributes of Risk
A methodical review and objective examination of an enterprise’s financial statements.
Audit
A proposed correction to the financial statements resulting from the auditor’s procedures.
Audit Adjustment
A committee of the board of directors, generally made up of three to five members of the board who are “outside directors”; responsible for the selection and appointment of the independent external auditor, and for reviewing the nature and scope of the engagement.
Audit Committee
The principal record of procedures performed, evidence obtained, and conclusions reached.
Audit Documentation (Working Papers)
The underlying accounting data and corroborating information that must be obtained to support auditor conclusions.
Audit Evidence
Goals of audit testing, developed in light of financial statement assertions.
Audit Objectives
A listing of audit procedures necessary to accomplish the objectives of the audit; required for every audit.
Audit Plan
The risk that an auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated.
Audit Risk
The risk that the auditor may unknowingly fail to appropriately modify the opinion on compliance in a compliance audit. It is comprised of the risk of material noncompliance and detection risk of noncompliance.
Audit Risk of Noncompliance
The testing of less than 100% of the items within an account balance or class of transactions in order to evaluate some characteristic of the balance or class.
Audit Sampling
An overall plan for the audit, typically used to develop the more detailed audit plan.
Audit Strategy
Evidence indicative of the sequential flow of accounting operations.
Audit Trail
A technique in which the auditor tests the input data, processes the data independently, and then compares his or her independently determined results to the program results.
Auditing Around the Computer
Tasks performed to accomplish the objectives of the audit.
Auditing Procedures
A document, presented by the auditor to a client or others, containing information in addition to the audited financial statements.
Auditor-Submitted Documents
An independent bank verification of year-end balances; also may provide information regarding loans, contingent liabilities, discounted notes, pledged collateral, and guarantees or security agreements.
Bank Confirmations
A schedule that compares the cash balance reported by the bank to the cash balance reported by the client, and explains any differences.
Bank Reconciliation
A schedule that itemizes transfers of cash among banks, including the record date per the client and the transaction date per the bank.
Bank Transfer Schedule
The threat that an auditor will, as a result of political, ideological, social, or other convictions, take a position that is not objective.
Bias Threat
A shipping document issued by a carrier evidencing receipt of goods and terms of transport.
Bill of Lading
A confirmation in which the recipient is requested to fill in the balance.
Blank Confirmation
In sampling, the selection of groups of adjacent items.
Block (Cluster) Sampling
An open exchange of ideas; required during planning as a means of evaluating the potential for material misstatement due to fraud.
Brainstorming
Unaudited summarized interim information for subsequent periods.
Capsule Financial Information
A financial statement assertion in the “transactions and events” category indicating that transactions and events have been recorded in the proper accounts.
Classification
A financial statement assertion in the “transactions and events” category indicating that financial information is appropriately presented and described and disclosures are clearly expressed.
Classification and Understandability
A document created by the client containing both audited financial statements and additional information (e.g., annual reports to shareholders, reports by charitable organizations to the general public, etc.)
Client-Prepared Document
An audit approach in which both tests of the operating effectiveness of controls and substantive procedures are used. If controls are operating effectively, less assurance will be required from substantive procedures.
Combined Approach
A letter from the CPA to the named underwriter and/or certain other requesting parties (e.g., client, broker-dealer, financial intermediary, or buyer/seller) just before the registration of the client’s securities. It covers the period from the date of the last auditors’ report to the “effective date” of the registration.
Comfort Letter
Restated financial statements in which each balance sheet components is expressed as a percentage of total assets, and each income statement component is expressed as a percentage of total revenue.
Common Size Financial Statements
An engagement in which an accountant presents in the form of financial statements information that is the representation of management.
Compilation
A financial statement assertion appearing in all three assertion categories and indicating that all transactions, events, assets, liabilities, and equity interests that should have been recorded have been recorded, and that all disclosures that should have been included in the financial statements have been included.
Completeness
An engagement under GAAS and GAGAS in which the auditor reports on whether the entity complied, in all material respects, with the compliance requirements applicable to its programs. Additional Single Audit Act requirements may apply.
Compliance Audit
An entity or business activity that prepares financial information that is included in the group financial statements.
Component
An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be part of the group engagement partner’s firm, a network firm, or another firm.
Component Auditor
Interrelated elements of internal control used to achieve an entity’s objectives; internal control components consist of: control environment, risk assessment, information and communication systems, monitoring, and (existing) control activities.
Components of Internal Control
Electronic methods used to test an automated transaction processing system; emphasis is placed on the input and processing stages of transaction processing.
Computer Assisted Audit Techniques (CAAT)
An IT (information technology) department employee who converts data into machine-readable form during the input stage (e.g., keypunch operator).
Computer Operator
An IT (information technology) department employee who develops and writes computer programs.
Computer Programmer
Approval of the issuance of the engagement report granted by the engagement quality reviewer under PCAOB standards. A firm cannot give an issuer permission to us the engagement report until concurring approval of issuance has been granted.
Concurring Approval of Issuance
Financial statements that are presented in considerable less detail than complete financial statements and do not include all required disclosures under GAAP.
Condensed Financial Statements
In sampling, a measure of how certain the auditor wants to be that his or her results are accurate. Not that the confidence level plus the risk of being ineffective=100%.
Confidence Level (Reliability)
A direct written response to the auditor from a third party, either in paper form or by electronic or other medium.
Confirmation
Goods belonging to one party that are held for sale by another party; the seller does not pay the owner until the goods have been sold.
Consigned Goods
A measure of the comparability of financial statements from one year to the next.
Consistency
An event that may, but is not certain to, occur. A loss contingency that is probable and that can be reasonably estimated should be reflected in that accounts.
Contingency
A fee established for performing services where no fee is charged unless a specific finding or result is obtained, or the fee amount is dependent upon the finding or result obtained.
Contingent Fee
An accountant with whom the client has an ongoing relationship, as opposed to an accountant hired only to report on the application of accounting principles.
Continuing Accountant
The policies and procedures that help ensure that management directives are carried out and that necessary steps are taken to address risks.
Control Activities
A weakness that exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
Control Deficiency
The tone of an organization, including management attitude, participation of those charged with governance, organizational structure, and human resource policies.
Control Environment
A group of employees who are responsible for internal control within the IT (information technology) department itself.
Control Group
The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal control.
Control Risk
The risk that noncompliance with a compliance requirement that could be material will not be prevented or detected on a timely basis by an entity’s internal control.
Control Risk of Noncompliance
A form of parallel simulation where the auditor observes an actual processing run and compares the actual results to the expected results based on the auditor’s own program.
Controlled Processing
A form of parallel simulation where the auditor uses an archived copy of the program in question (generally the auditor’s control copy) to reprocess transactions. The results are then compared to the results from the normal processing run.
Controlled Reprocessing
Support that gives validity to recorded accounting data.
Corroborating Evidence
A ratio that measures security for long-term creditors and/or investors.
Coverage Ratio
A determination by the credit department regarding whether or not a specific customer may receive goods on open account.
Credit Approval
An internal document used to indicate a credit to a particular account, typically accounts receivable.
Credit Memo
To verify the mathematical accuracy of a statement or schedule by adding rows of numbers across, from left to right.
Crossfoot
A collection of audit documentation applicable to the year under audit.
Current File
A financial statement assertion in the “transactions and events” category indicating that transactions and events have been recorded in the correct accounting period.
Cutoff
A bank statement sent directly to the auditor, usually shortly after period end.
Cutoff Bank Statement
An examination of transactions occurring several days before and several days after year-end, to ensure that they were recorded in the proper accounting period.
Cutoff Testing
Theft of an entity’s assets when the effect of the theft causes the financial statements not to be presented in conformity with GAAP.
Defalcation (Misappropriation of Assets)
The risk that an auditor will not detect a material misstatement that exists in a relevant assertion.
Detection Risk
The risk that the auditor will not detect material noncompliance that exists.
Detection Risk of Noncompliance
In sampling, the error rate found in a sample, used to estimate the overall error rate in the population.
Deviation Rate
A sampling plan that uses the average difference between the audited (correct) values of items and their book values to project the actual population value.
Difference Estimation
Following an audit trail either forward (from source documents to financial records) or backward (from financial records to source documents).
Directional Testing
An auditor’s report stating that the auditor does not express an opinion on the financial statements.
Disclaimer of Opinion
A special type of attribute sampling appropriate when the auditor believes the population deviation rate is zero or near zero.
Discovery Sampling
The end of the period during which the auditor assembles the final audit documentation file. After this date, existing documentation must not be deleted, and additions to the workpapers must be documented as such. Auditing standards define this date as 60 days following the report release date; PCAOB standards define it as 45 days following the report release date.
Documentation Completion Date
An audit procedure in which the auditor uses the same transaction as both a test of controls and a substantive test.
Deal Purpose Test
A legal concept indicated that an underwriter who performs a reasonable investigation will not be held liable for material omissions or misstatements in a registration statement.
Due Diligence Defense
A section of application program code that collects transaction data for the auditor.
Embedded Audit Module
A paragraph included in the auditor’s report when required by GAAS or at the auditor’s discretion when referring to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to the users’ understanding of the financial statements.
Emphasis-of-Matter Paragraph
A document identifying all significant audit findings and issues; required by PCAOB standards for audits of issuers.
Engagement Completion Document
A written communication documenting the understanding between an accountant and his or her client.
Engagement Letter
The partner responsible for the overall quality of the engagement.
Engagement Partner
A review required by PCAOB standards that is performed by a partner who is not otherwise associated with an issuer audit engagement. The engagement quality reviewer evaluates the significant judgments made by the engagement team and the overall conclusion reached on the engagement.
Engagement Quality Review
Controls related to the control environment, management override of controls, the company’s risk assessment process, centralized processing, monitoring the results of operations, monitoring other controls, period-end financial reporting, and policies that address significant business controls and rick management practices.
Entity-Level Controls
An unintentional misstatement or omission of an amount or disclosure in the financial statements.
Error
An engagement that provides positive assurance (an opinion) based on procedures such as search, verification, inquiry, and analysis.
Examination
A financial statement assertion in the “account balances” category indicating that assets, liabilities, and equity interests exist.
Existence
In sampling, the auditor’s best estimate of the rate of deviation from a prescribed control procedure.
Expected Deviation Rate
The degree to which an audit test is performed; a greater extent of testing is achieved by increasing sample size, performing testing at a more detailed level, or performing more extensive tests.
Extent of Testing
Information obtained from independent sources outside the enterprise.
External Evidence
Misstatements about which there is no doubt.
Factual Misstatement
Accurate representation in the financial statements, within a range of acceptable limits, of a company’s financial position, results of its operations, etc.
Fair Presentation
A financial reporting framework that requires compliance with the requirements of the framework, acknowledges explicitly or implicitly that it may be necessary for management to provide disclosures beyond those specifically required by the framework in order to achieve fair presentation of the financial statements, and acknowledges explicitly that it may be necessary for management, in extremely rare circumstances, to depart from a requirement of the framework to achieve fair presentation of the financial statements.
Fair Presentation Framework
The threat that aspects of a relationship with management or personnel of an audited entity, such as a close or long relationship, or that of an immediate or close family member, will lead an auditor to take a position that is not objective.
Familiarity Threat
The amount at which an asset could be bought or sold (or the amount at which a liability could be incurred or settled) in a current transaction between willing parties.
Fair Value
A financial statement that reflects the expected financial results of a future period based on expected conditions and expected courses of action.
Financial Forecast
A financial statement that reflects the financial results of a future period based on hypothetical (“what if”) assumptions.
Financial Projection
Claims made implicitly or explicitly by management about the recognition, measurement, presentation, and disclosure of information in the financial statements. Financial statement assertions fall into three categories: transactions and events, account balances, and presentation and disclosure.
Financial Statement Assertions
A symbolic diagram representing the sequential flow of authority, processes, and documents.
Flowchart
To verify the mathematical accuracy of a statement or schedule by adding columns of numbers from top to bottom.
Foot
An intentional action that results in misstatement of the financial statements.
Fraud
Three conditions that generally are present when fraud occurs: incentives/pressures (a reason to commit fraud); opportunity (a lack of effective controls), and rationalization/attitude (an attempt to justify fraudulent behavior).
Fraud Risk Factors
Intentional misstatements or omissions of amounts or disclosures in the financial statements, that are designed to deceive financial statement users.
Fraudulent Financial Reporting
Information processing controls that apply broadly throughout the company (e.g., access controls, controls related to software/hardware acquisition and maintenance, and controls over data center/network operations).
General Controls
A report that is not restricted to specified parties.
General Use Report
Software that is used to interrogate files, extract and analyze data, and allow performance of tests directly on the client’s system.
Generalized Audit Software Package (GASP)
The set of accounting rules established by the Financial Accounting Standards Board.
Generally Accepted Accounting Principles (GAAP)
Qualitative standards that provide a measure of audit quality and of the objectives to be achieved in an audit.
Generally Accepted Auditing Standards (GAAS)
Standards for audits of government organizations, and audits of government assistance received by nongovernmental and government organizations.
Generally Accepted Government Auditing Standards (GAGAS)
A financial reporting framework designed to meet the needs of a wide range of users, such as U.S. GAAP or IFRS.
General Purpose Framework
The belief that an entity will continue to operate into the foreseeable future.
Going Concern Assumption
An engagement that provides an opinion on financial statements as well as testing and reporting on compliance with the laws and regulations that authorize the spending of public funds.
Government Audit
The partner or other person in the firm who is responsible for the group audit engagement and for the auditor’s report on the group financial statements.
Group Engagement Partner
The team, including the group engagement partner, other partners, and staff, that establishes the overall audit strategy, communicates with component auditors, performs work on the consolidation process, and evaluates the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements.
Group Engagement Team
Financial statements that include the financial information of more than one component.
Group Financial Statements
A transaction not involving the facts or circumstances of a specific entity.
Hypothetical Transaction
Code of ethics established by the International Ethics Standards Board for Accountants (IESBA), a standard-setting board of the International Federation of Accountants (IFAC).
IFAC Code of Ethics
A control that has been implemented exists and is being used.
Implemented
An account from which employees are paid and which is periodically replenished for the exact amount disbursed.
Imprest Payroll Account
Clearly immaterial, as determined by a “reasonable person” standard.
Inconsequential
The quality of being without bias and free from any obligation to or interest in the client, its management, or its owners.
Independence
A component of internal control that deals with the identification, capture, and exchange of information in a timely and useful manner (information) and with an understanding of individual roles and responsibilities (communication).
Information and Communication Systems
Automated means of originating, processing, storing, and communicating information.
Information Technology (IT)
The provision that the auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement because of the nature of financial reporting, the nature of audit procedures, the timeliness of financial reporting, and the balance between cost and benefit.
Inherent Limitations of an Audit
The provision of only reasonable (as opposed to absolute) assurance regarding the achievement of internal control objectives. Inherent limitations arise due to human error, deliberate circumvention of controls by collusion, management override, and the difficulty of achieving appropriate segregation of duties in smaller entities.
Inherent Limitations of Internal Control
A paragraph included in a report on an entity’s internal control, indicating that undetected misstatements may occur, and that projections of the evaluation to future periods are subject to the risk that conditions may change.
Inherent Limitations Paragraph
The susceptibility of a relevant assertion to a material misstatement, assuming there are no related controls.
Inherent Risk
The susceptibility of a compliance requirement to noncompliance that could be material, assuming that there are no related controls.
Inherent Risk of Noncompliance
An engagement in which the financial statements of the prior period were not audited or were audited by a predecessor auditor.
Initial Audit
A concurrent audit of both the financial statements and internal control over financial reporting. PCAOB standards require an integrated audit for all issuers. Integrated audits can also be performed for nonissuers under the SSAEs.
Integrated Audit
A computer assisted audit technique in which client personnel unknowingly process a set of test data, the proper results of which are already known.
Integrated Test Facility (ITF)
