Module 4: Responding to Risk Assessment: Evidence Accumulation and Evaluation KEYTERMS Flashcards
Accounting Estimate
An approximation of a monetary amount in the absence of a precise means of measurement
How is an accounting estimate measured?
Measured at fair value where there is estimation uncertainty, as well as for other amounts that require estimation.
Analytical procedures
Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data.
Analytical procedures also encompass such investigation, as is necessary, of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.
Appropriateness (of audit evidence)
Measure of quality of audit evidence that is its relevance and its reliability in providing support for conclusions on which the auditor’s opinion is based
Arm’s length transaction
Transaction conducted on such terms and conditions between a willing buyer and a willing seller who are unrelated and are acting independently of each other and pursing their own best interests
Assertions
Representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur
Audit evidence
Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based.
Includes both info contained in accounting records underlying the financial statements and other info.
Sufficiency of audit evidence
Measure of the quantity of audit evidence.
Affected by auditor’s assessment of risks of material misstatement and also by the quality of such audit evidence
Appropriateness of audit evidence
Measure of the quality of audit evidence; its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based
Control 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 ind. or agg with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control
Detection 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
Exception (to external confirmation request)
Response that indicates a difference between information requested to be confirmed, or contained in the entity’s records, and information provided by the confirming party.
External confirmation
Audit evidence obtained as a direct written response to the auditor from a third party (confirming party) either in paper or electronic form
Example: through the auditor’s direct access to information held by a 3rd party)
Author’s direct access to information
May meet the definition of an external confirmation if auditor is provided by the confirming party with the electronic access codes or information necessary to access a secure website where data that addresses the subject matter of the confirmation is held
Fraud
An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception that results in a misstatement in financials that are subject of an audit. For financial statement audits, fraud includes two types of intentional misstatements - misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets