Ch 1 vocab Flashcards
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Acceptable level
-level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s independence is not impaired.
Adverse opinion
-when the auditor believes that the financial statements taken as a whole are not presented fairly in conformity with GAAP
-also when the auditor believes the client lacks good internal controls
American Institute of Certified Public Accountants (AICPA)
-A professional organization for CPAs that develops professional standards for the conduct of nonpublic company audits and other services performed by its members.
-The organization also serves to self-regulate the profession performing nonpublic audits.
Audit quality
-Performing an audit in accordance with generally accepted audit standards (GAAS)
Center for Audit Quality (CAQ)
-An organization affiliated with the AICPA that is dedicated to enhancing investor confidence and trust in the financial markets
Client acceptance decision
The process by which a new client is evaluated by the audit firm and individual engagement partner prior to being accepted into the audit firm’s portfolio of clients.
Client continuance decision
-The process by which existing clients for which the audit firm provided services in the past are evaluated by the audit firm
-determines whether the audit firm should continue to provide services again in the next period.
Confidential information
-Information obtained during the conduct of an audit related to the client’s business or business plans
-most cases auditor cannot share this information
Cooling off period
Number of years after which the individual auditor may resume providing service to the audit client
Covered member
-An individual on the engagement team
-An individual in a position to influence the engagement
-A partner, partner equivalent, or manager who provides more than 10 hours of nonattest services to the audit client within any fiscal year
CPA
Accountant licensed by state public accounting board
Direct financial interest
A financial interest owned directly by, or under the control of, an individual or entity
Due professional care
standard of care expected to be demonstrated by a competent professional in his or her field of expertise, set by GAAS
Engagement letter
A communication between the audit firm and the audit committee that states the scope of the work to be done on the audit
Ethical dilemma
A situation in which moral duties or obligations conflict
an ethically correct action may conflict with an individual’s immediate self-interest
Financial Reporting Council
-The United Kingdom’s independent regulator
-responsible for promoting investment in securities through good corporate governance and financial reporting
Financial statement audit
-process of objectively obtaining evidence regarding assertions about economic actions and events of a organizations f.s
Generally accepted auditing standards (GAAS)
GAAS refers to professional external auditing standards that are followed by auditors when conducting a financial statement audit
Indirect financial interest
A financial interest in which the beneficiary neither controls the intermediary nor has the authority to supervise or participate in the intermediary’s investment decisions.
Integrated audit
Type of audit provided when an external auditor is engaged to perform an audit of the effectiveness of internal control over financial reporting
International Auditing and Assurance Standards Board (IAASB)
-part of the International Federation of Accountants
-responsible for issuing auditing and assurance standards
-goal is to harmonize auditing standards on a global basis.
International Ethics Standards Board for Accountants (IESBA)
-An independent, standard-setting body
-sets robust, internationally appropriate ethics standards,
-includes auditor independence requirements,
International Federation of Accountants (IFAC)
-The global organization for the accountancy profession
-dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies.
Network firm
-A firm or other entity that belongs to a network.
-includes any entity/firm that the network firm, by itself or through one or more of its owners, controls, is controlled by, or is under common control with.
Objectivity
Impartial unbiased attitude
Principles of professional conduct
Broad principles that articulate auditors’ responsibilities
-requirements to act in the public interest,
-to act with integrity and objectivity,
-to be independent,
-to exercise due care,
-to perform an appropriate scope of services
Professional judgment
The application of relevant professional knowledge and experience to the facts and circumstances in order to reach a conclusion or make a decision
Professional skepticism
Attitude that includes a questioning mind and being critical of audit evidence
Public Company Accounting Oversight Board (PCAOB)
-appointed by the SEC, to provide oversight of the firms that audit public companies registered with the SEC.
-It has the authority to set auditing standards for the audits of public companies
Rights theory
An ethical theory that identifies a hierarchy of rights that should be considered in solving ethical dilemmas.
Safeguards
Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level.
Securities and Exchange Commission (SEC)
The governmental body with the oversight responsibility to ensure the proper and efficient operation of capital markets in the United States.
Threats
Relationships or circumstances that could compromise compliance with the rules.
Unqualified audit report
The standard audit report that describes the auditor’s work and communicates the auditor’s opinion that the financial statements are fairly presented in accordance with GAAP.
Utilitarian theory
An ethical theory that systematically considers all the potential stakeholders who may be affected by an ethical decision and seeks to measure the effects of the decision on each party;
