This is a long list of definitions for F8 Audit And Assurance revision. I found this thread in OpenTuition while I'm browsing around the forum, it is a great forum for ACCA students to share out their tips and information. They even offer free notes and videos too! Thanks OpenTuition.
It will be very helpful on your way to memorize definitions for your coming auditing paper. All the word definitions are in alphabetical order so it's easier for you to look for them. Just like in a Dictionary.
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Agreed upon procedures engagement
—An engagement in which an auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. The recipients of the report form their own conclusions from the report by the auditor. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures may misinterpret the results
* Analytical procedures
—Evaluations of financial information through analysis of
plausible relationships among both financial and non-financial 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)
—The measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based.
* 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.
Reasonable assurance engagement
—The objective of a reasonable assurance
engagement is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner’s conclusion.
Limited assurance engagement
—The objective of a limited assurance engagement is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement, but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of expression of the practitioner’s conclusion.
Assurance engagement risk
—The risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.
*Audit documentation
—The record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached (terms such as “working papers” or “workpapers” are also sometimes used).
*Audit risk
—The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.
*Audit sampling (sampling)
—The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
*Auditor
—“Auditor” is used to refer to the person or persons conducting the audit, usually the engagement partner or other members of the engagement team, or, as applicable, the firm. Where an ISA expressly intends that a requirement or responsibility be fulfilled by the engagement partner, the term “engagement partner” rather than “auditor” is used. “Engagement partner” and “firm” are to be read as referring to their public sector equivalents where relevant.
Computer-assisted audit techniques—Applications of auditing procedures using the computer as an audit tool (also known as CAATs).
Control activities
—Those policies and procedures that help ensure that management directives are carried out. Control activities are a component of internal control.
Control environment
—Includes the governance and management functions and the attitudes, awareness and actions of those charged with governance and management concerning the entity’s internal control and its importance in the entity. The control environment is a component of 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.
*Emphasis of Matter paragraph
—A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.
Engagement letter
—Written terms of an engagement in the form of a letter.
*Engagement partner
—The partner or other person in the firm who is responsible for the engagement and its performance, and for the report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body.
*Engagement team
—All partners and staff performing the engagement, and any individuals engaged by the firm or a network firm who perform procedures on the engagement. This excludes external experts engaged by the firm or a network firm
Error
—An unintentional misstatement in financial statements, including the omission of an amount or a disclosure.
*Fraud
—An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.
Fraudulent financial reporting
—Involves intentional misstatements, including omissions of amounts or disclosures in financial statements, to deceive financial statement users.
General IT-controls
—Policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems.
General IT
-controls commonly include controls over data center and network operations; system software acquisition, change and maintenance; access security; and application system acquisition, development, and maintenance.
Inquiry
—Inquiry consists of seeking information of knowledgeable persons, both
financial and non-financial, within the entity or outside the entity.
Inspection (as an audit procedure)
—Examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset.
*Inspection (in relation to quality control)
—In relation to completed engagements, procedures designed to provide evidence of compliance by engagement teams with the firm’s quality control policies and procedures.
*Internal audit function
—An appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control.
*Internal auditors
—Those individuals who perform the activities of the internal audit function. Internal auditors may belong to an internal audit department or equivalent function.
*Internal control
—The process designed, implemented and maintained by those
charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. The term “controls” refers to any aspects of one or more of the components of internal control.
Investigate
—Inquire into matters arising from other procedures to resolve them.
*Misstatement
—A difference between the amount, classification, presentation, or
disclosure of a reported financial statement item and the amount, classification,
presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud.
*Non-sampling risk
—The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk.
Observation
—Consists of looking at a process or procedure being performed by others, for example, the auditor’s observation of inventory counting by the entity’s personnel, or of the performance of control activities.
*Other Matter paragraph
—A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report.
Overall audit strategy
—Sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan.
*Partner
—Any individual with authority to bind the firm with respect to the
performance of a professional services engagement.
*Performance materiality
—The amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures.
*Pervasive
—A term used, in the context of misstatements, to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. Pervasive effects on the financial statements are those that, in the auditor’s judgment:
(a) Are not confined to specific elements, accounts or items of the financial
statements;
(b) If so confined, represent or could represent a substantial proportion of the
financial statements; or
(c) In relation to disclosures, are fundamental to users’ understanding of the financial statements.
*Population
—The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions.
Practitioner
—A professional accountant in public practice.
*Professional judgment
—The application of relevant training, knowledge and
experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.
*Professional skepticism
—An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.
*Reasonable assurance (in the context of assurance engagements, including audit engagements, and quality control)
—A high, but not absolute, level of assurance.
Recalculation
—Consists of checking the mathematical accuracy of documents or
records.
Reperformance
—The auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal controls.
Responsible party
—The person (or persons) who:
(a) In a direct reporting engagement, is responsible for the subject matter; or
(b) In an assertion-based engagement, is responsible for the subject matter information (the assertion), and may be responsible for the subject matter.
Review engagement
—The objective of a review engagement is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an applicable financial reporting framework.
*Risk assessment procedures
—The audit procedures performed to obtain an
understanding of the entity and its environment, including the entity’s internal control, to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels.
*Risk of material misstatement
—The risk that the financial statements are materially misstated prior to audit.
This consists of two components, described as follows at the assertion level:
(a) Inherent risk—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.
(b) 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 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.
*Sampling risk
—The risk that the auditor’s conclusion based on a sample may be
different from the conclusion if the entire population were subjected to the same audit procedure. Sampling risk can lead to two types of erroneous conclusions:
(a) In the case of a test of controls, that controls are more effective than they actually are, or in the case of a test of details, that a material misstatement does not exist when in fact it does. The auditor is primarily concerned with this type of erroneous conclusion because it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion.
(b) In the case of a test of controls, that controls are less effective than they actually are, or in the case of a test of details, that a material misstatement exists when in fact it does not. This type of erroneous conclusion affects audit efficiency as it would usually lead to additional work to establish that initial conclusions were incorrect.
*Significant deficiency in internal control
—A deficiency or combination of deficiencies in internal control that, in the auditor’s professional judgment, is of sufficient importance to merit the attention of those charged with governance.
*Subsequent events
—Events occurring between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.
*Substantive procedure
—An audit procedure designed to detect material misstatements
at the assertion level. Substantive procedures comprise:
(a) Tests of details (of classes of transactions, account balances, and disclosures); and
(b) Substantive analytical procedures.
*Sufficiency (of audit evidence)
—The measure of the quantity of audit evidence. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by the quality of such audit evidence.
*Tests of controls
—An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
*Those charged with governance
—The person(s) or organization(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager.
*Tolerable misstatement
—A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.
*Unmodified opinion
—The opinion expressed by the auditor when the auditor
concludes that the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework
Walk-through test
—Involves tracing a few transactions through the financial reporting system.
*Written representation
—A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. Written representations in this context do not include financial statements, the assertions therein, or supporting books and records.
Stewardship
–is the responsibility to take good care of resources. A steward is a person entrusted with management of another person’s property, for example, when one person is paid to look after another person’s house while the owner goes abroad on holiday.
A fiduciary relationship
— is a relationship of ‘good faith’ such as that between the directors of a company and the shareholders of the company. There is a ‘separation of ownership and control’ in the sense that the shareholders own the company, while the directors take the decisions. The directors must take their decisions in the interests of the shareholders rather than in their own selfish personal interests.
Audit sampling
— (sampling) involves the application of audit procedures to less than 100% of items within a class of transactions or account balance such that all sampling units have a chance of selection. This will enable the auditor to obtain and evaluate audit evidence about some characteristic of the items selected in order to form or assist in forming a conclusion concerning the population from which the sample is drawn. Audit sampling can use either a statistical or a non-statistical approach.
Random selection
— generating a random number to determine which item or $ in the population is the first in the sample and using a sampling interval, usually based on tolerable error, to select subsequent items.
Judgmental or haphazard sampling
— picking say two invoices from each month, or focusing on a particular period do not usually count as statistical sampling because of the risk of bias in selecting the sample.
via :- Thanks to akberacca at opentuition
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