CH 7 Vocab Flashcards
The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
Audit risk
A conceptual depiction of the relationship between inherent risk, control risk, detection risk, and audit risk.
Audit risk model
See engagement risk
Auditor business risk
Such a misstatement occurs when, during the audit, the auditor comes to find that there exists an error in the recording of a particular transaction, regardless of whether it was intentional or unintentional.
Auditor-detected misstatement
A group discussion designed to encourage auditors to creatively assess client risks, particularly those relevant to the possible existence of fraud in the organization.
Brainstorming
Risks affecting the business operations and potential outcomes of an organization’s activities.
Client Business Risk
The risk that a misstatement that could occur in an assertion about a class of transaction, account balance, or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control.
Control Risk
The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements.
Detection Risk
This risk reflects the potential for loss to the auditor that the client poses, including being a publicly traded client, not being a profitable engagement, damaging the auditor’s reputation, and/or potential litigation relating to the engagement.
Engagement risk (also known as auditor business risk)
The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements.
Extent of Risk Response
Locations that are financially significant to the client’s financial statements overall.
Individually important locations
The susceptibility of an assertion about a class of transaction, account balance, or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.
Inherent Risk
The magnitude of an omission or misstatement of accounting information that, in view of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
Materiality
An error, either intentional or unintentional, that exists in a transaction or financial statement account balance.
Misstatement
The types of audit procedures applied given the nature of the account balance and the most relevant assertions regarding that account balance.
Nature of risk response
A materiality level that the auditor uses in determining whether the financial statements overall are materially correct
Overall materiality (also known as planning materiality)
A materiality level that the auditor uses for determining significant accounts, significant locations, and audit procedures for those accounts and locations
Performance materiality (also known as tolerable error)
A materiality level that the auditor uses in determining whether the financial statements overall are materially correct
Planning materiality (also known as overall materiality)
A materiality level that signifies the misstatements identified throughout the audit that will be considered at the end of the audit in determining whether the financial statements overall are materially correct.
Posting Materiality
An analytical technique that is useful in identifying significant differences between the client results and a norm (such as industry ratios) or between auditor expectations and actual results; ratio analysis is also useful in identifying potential audit problems that may be found in ratio changes between years.
Ratio Analysis
Risk that exists at the overall financial statement level and at the assertion level, and within these levels risk can be categorized as involving inherent risk and control risk.
Risk Of Material Misstatement
An identified and assessed risk of material misstatement that, in the auditor’s professional judgment, requires special consideration.
Significant Risk
Refers to when audit procedures are conducted and whether those procedures are conducted at announced or predictable times.
Timing of Risk Response
A materiality level that the auditor uses for determining significant accounts, significant locations, and audit procedures for those accounts and locations
Tolerable error (also known as performance materiality)
An analytical technique that includes simple year-to-year comparisons of account balances, graphic presentations, analysis of financial data, histograms of ratios, and projections of account balances based on the history of changes in the account.
Trend Analysis
