Auditing Ch 3 terms

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  1. accounting estimates
    approximations of financial statemnt numbers often included in financial statements
  2. analytical procedures
    reasonableness tests used to gain an understanding of financial statement accounts and relationships
  3. audit committee
    a subset of a company's board of directors composed of outside members who can provide a buffer between the audit firm and management
  4. audit plan
    a list of the audit procedures the auditors need to perform to gather sufficient appropriate evidence on which to base their opinion on the financial statements
  5. audit risk
    the risk that the auditor will express an inappropriate audit opinion when the financial statements are materially misstated (e.g. giving an unqualified opinion on financial statements that are misleading because of material misstatements the auditors failed to discover
  6. control risk
    the probability that the client's internal control activities will fail to prevent or detect material misstatements, provide any enter or would have entered the accounting system in teh first place
  7. cycle
    a set of balance sheet and income statement accounts that are related by their common usage in a business process
  8. defalcation
    another name for employee fraud and embezzlement
  9. detection risk
    the probability that audit procedures will fail to produce evidence of material misstatemements, provided any have entered or would have entered the accounting system in the first place and have not been prevented or detected and corrected by the client's control activities
  10. direct-effect illegal acts
    violations of laws or government regulations by the entity or its management or employees that produce direct and material effects on dollar amounts in financial statements
  11. embezzlement
    a type of fraud involving employees or nonemployees wrongfully taking money or property entrusted to their care, custody, and control, often accompanies by false accounting entries and other forms of lying and cover up
  12. employee fraud
    • the use of fraudulent means to take money or other property from an employer. It consists of three phases,
    • (1) the fraudulent act,
    • (2) the conversion of the money or property to the fraudsters use
    • (3) the cover-up
  13. Errors
    unintentional misstatements or omissions of amounts or disclosures in financial statements
  14. extended procedures
    audit procedures that are used in response to heightened fraud awareness as the result of identified fraud risks. Extended procedures could include counting petty cash twice on the same day, contract confirmations with customers, and "surprise" inventory observation
  15. Fraud
    knowingly making material misrepresentations of fact witht he intent of inducing someone to believe the falsehood and act on it and, thus, suffer a loss or damage
  16. fraudulent financial reporting
    intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements
  17. indirect-effect illegal acts
    violaions of lawa and regulations that are far removed from financial statement effect (e.g. violations relating to insider securities trading, occupational health and safety, food and drug administration, environmental protection, and equal employment opportunity)
  18. information risk
    the probabilityi that the information circulated by an entity will be false or misleading
  19. inherent risk
    the probability that, in the absence of internal controls, material erros or fraud could enter the accounting system used to develop financial statements
  20. internal control audit plan
    the specification of procedures for obtaining an understanding of the client's business and internal control and for assessing the control risk related to the financial account balances
  21. larceny
    simple theft of an employer's property that is not entrusted to the employee's care, custody, or control
  22. management fraud
    deliberate fraud committed by management that injures investors and creditors through materially misleading information
  23. materiality
    an amount or event that influences the decisions of financial statement users
  24. Risk of material misstatement
    combined inherent and control risk; in other words, the likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control
  25. substantive audit plan
    the specification of substantive procedures for gathering direct evidence on management's assertions
  26. tracing
    an audit procedure in which the auditor selects a basis source document and follows its processing path forward to find its final recording in a summary journal or ledger. in practice, however, the term tracing may be used to describe following the path in either direction
  27. 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)
  28. white collar crime
    fraud perpetrated by people who work in offices and steal with a pencil or a computer terminal. the contrast is blue-collar crime (violent street crim)
Card Set:
Auditing Ch 3 terms
2012-03-25 20:33:32
Auditing Assurance Louwers

Management Fraud and Audit Risk
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