Chapter 3 Flashcards
Analytical procedures
Procedures that allow auditors to evaluate financial information by studying relationships among both financial and nonfinancial data. When used near the end of the audit, analytical procedures allow auditors to assess the conclusions reached during the audit and evaluate the overall financial statement presentation.
Audit documentation
The written basis for the auditor’s conclusions that provides the necessary support for the auditor’s assertions and representations made in the auditor’s report
Audit engagement partner
The person with the final responsibility for the audit, usually an industry specialist
Current files
Includes all client acceptance or continuance documents along with planning documentation for the year under audit
Engagement letter
This letter sets forth the understanding with the client, including in particular (1) the objectives of the engagement, (2) management’s responsibilities, (3) the auditors’ responsibilities, and (4) any limitations of the engagement
Form 8-K
The “current events” report filed periodically at the occurrence of major events, such as earnings releases, major asset sales, acquisitions, and auditor changes
Interim audit work
The procedures performed several weeks or months before the balance-sheet date
Internal control audit plan
A plan that would contain a list of the specific procedures needed to obtain an understanding of the client’s internal control system and test that understanding for those controls that relate to the relevant financial statement assertions
Lead schedule
A summary of the accounts in or components of an account group
Materiality
An amount or event that has a substantial likelihood to influence financial statement users’ decisions. Thus, material information is a synonym for important information. The emphasis is on the financial statement users’ point of view, not on the auditors’ or managers’ points of view.
Planning memorandum
The document summarizing the preliminary analytical procedures and the materiality assessment with specific directions about the effect on the audit
Predecessor auditor
The public accounting firm that has been terminated or has voluntarily withdrawn from an audit engagement (whether the audit has been completed or not)
Quality assurance partner
The second audit partner on the audit team as required for audits of financial statements filed with the SEC who reviews the audit team’s work in critical audit areas (those areas with the highest potential audit risk)
Audit specialists
The persons skilled in fields other than accounting and auditing—actuaries, appraisers, attorneys, engineers, and geologists—who are not members of the public accounting firm
Substantive audit plan
Document that contains a list of audit procedures for gathering evidence related to the relevant assertions identified for the significant financial statement accounts and disclosures on an audit client
Termination letter
The documentation provided to former clients dealing with the subject of future services, in particular (1) access to audit documentation by new auditors, (2) reissuance of the auditors’ report when required for SEC reporting or comparative financial reporting, and (3) fee arrangements for such future services. The termination letter also can contain a report of the auditor’s understanding of the circumstances of termination
Tracing
An audit procedure in which the auditor selects a basic source document and follows its processing path forward to find its final recording in a summary journal or ledger.
Vouching
An audit procedure in which an auditor selects an item of financial information, usually from a journal or ledger, and follows its path back through the processing steps to its origin (i.e., the source documentation that supports the item selected).
Year-end audit work
The procedures performed shortly before and after the balance-sheet date
