Short Notes (Audit)

Material misstatement: A misstatement in the financial statement can be considered material if knowledge of the misstatement would affect a decision of a reasonable user of the statement. Third party liability: A situation in which one party is held partly responsible for the unlawful actions of a third party. Independence in fact: Independence in fact exists when the auditor is actually able to maintain an unbiased attitude throughout the audit. The auditors ability to take an unbiased viewpoint in the performance of professional services. Competence of evidence: The degree to which evidence can be considered believable or worthy of trust. Acceptable audit risk: It is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and unqualified option has been issued. Evidence: Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria. Compliance audits: It is a type of audit that determines whether the audited is following specific procedures, rules or regulations set by some higher authority. Audit manual: Resources or guidance used by auditor to conduct an audit. Teeming and lading: It is a type of fraud that involves the crediting of one account through the abstraction of money from another account. An attempt to hide missing funds by delaying the recording of cash receipts in a business's books. Continuous audit: An auditing process that examines accounting practices continuously throughout the year. Continuous audits are usually technology-driven and designed to automate error checking and data verification in real time. Independence in appearance: The auditors ability to maintain an unbiased viewpoint in the eyes of others. Physical examination: Examine physically the reliability of evidence by the auditor. Qualified option: Audit report indicating that the overall financial statement are fairly presented but the scope of the audit has been materially restricted or GAAP were not followed in preparing financial statement. Audit program: An audit program (or programme) is a set of arrangements that are intended to achieve a specific audit purpose within a specific time frame. It includes all of the activities and resources needed to plan, organize, and conduct one or more audits. Financial statement cycle: The recurring sequence of financial statements such as journal, ledger, income statement, balance sheet and cash flow statement Ethics: A set of rules that determines right or wrong conduct. Reasonable assurance: Assurance is the level of certainty. Reasonable assurance is less than certainty and more than low-level assurance. It indicates that the auditor is not an insurer or guarantor of the correctness of the financial statement. However, he tries his best to find out highest result. Window dressing: The deceptive practice of using accounting tricks to make a company's balance sheet and income statement appear better than they really are. Jamal Hossain Shuvo Page 1

Short Notes (Audit)

Financial statement audit: An examination and verification of a companys financial and accounting records and supporting documents by professional, such as certified public accountant. Assurance service: Assurance services are professional service that improves the quality of information for decision makers. Attestation services: A type of assurance services in which a CPA firm issues a written communication that express a conclusion about the reliability of a written ascertain of another party. Information risk: The risk that information upon which a business decision is made is inaccurate. Auditing: It is the accumulation and evaluation of evidence about information to determine and report on degree of correspondence between the information and establish criteria. CPA: A person who has met state regulatory requirement, including passing the uniform CPA exam, thus been certified; his primary responsibility is to audit on published historical Financial statement of commercial and noncommercial entities. Standard unqualified option: Audit report indicating that all auditing conditions have been met, no significant misstatements have been discovered and the auditors feels the financial statement are fairly sated in accordance with GAAP. Unqualified with explanatory paragraph: Audit report indicating that the overall financial statement are fairly presented with satisfactory result, but the auditor believes that it is important or required to provide additional information. Adverse or Disclaimer: Audit report indicating that the financial statements are not fairly presented and the auditor is unable to form an opinion as to whether the financial statements are fairly presented or he is not independent. Cycle approach: It is a method of dividing the audit such that closely related types of transaction and account balances are included in the same cycle. Management assertion: Are implied or expressed assertions or represent by management about the accuracy of transaction and the related accounts in the financial statement. Persuasiveness of evidence: The degree to which the auditor is convinced that the evidence support the audit opinion. Documentation: The auditors examination of the clients documents and records to substantiate the information that is or should be included in the financial statement. Vouching: The use of documents to verify the accuracy of the transaction and balances in the financial statement. Professional skepticism: It is an attitude that includes a questioning mind and a critical assessment of audit evidence. The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered. The auditor should not assume that management is unquestionably honest. Analytical procedure: Use of comparison and relationships to assess whether account balances or other data appear reasonable.

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Short Notes (Audit)

Misappropriation of asset: A type of fraud in which employee omits any accounting items from recording for direct financial gain. Also called employee fraud and harm the owner and creditor. Fraudulent financial reporting: A type of fraud that involves intentional misstatement in the financial statement by overestimating or underestimating of any accounting items for indirect financial gain. Also called management fraud and it harms the user of financial statement in decision-making. Inherent risk: It is a measure of the auditors assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control. Engagement letter: An agreement between the CPA firm and the client as to the terms of the engagement for the conduct of the audit service. It is used to avoid future misunderstanding between client and auditor. Related party: A party to whom the client at least has one financial transaction. Bylaws: The rules and procedures adopted by a corporations stockholders including the corporations fiscal year and the duties and powers of its officers. Corporate charter: A legal document granted by the state in which a company is incorporated that recognizes a corporation as a separate entity. Corporate minutes: The official record of the meeting of a corporations stockholders in which corporate issues such as the declaration of dividend and the approval of contracts are documented. Working papers: The records kept by the auditor of the procedures applied, the test performed, the information obtained, and the pertinent conclusion reached in the engagement. Permanent files: Auditors working papers that contains data of a historical or continuing nature pertinent to the current audit such as copies of articles of incorporation, by laws, bond indenture and contracts. Current files: It includes all types of documents and evidence collected during the audit years. Lead schedule: A working paper that contains the details accounts from the general ledger making up a line item total in the working trial balance. Working trial balance: A listing of the general ledger accounts and their year-end balances prepared by the auditor. Tricks mark: Symbols used on a working paper that provide additional information on details of audit procedures performed. Confirmation: The auditors receipt of a written or oral response from an independent third party verifying the accuracy of information requested. Materiality: A misstatement in the financial statements can be considered material if knowledge of the misstatement would affect a decision of a reasonable user of the statements. Control risk: A measure of the auditors assessment of the likelihood that misstatement exceeding a tolerable amount in a segment will not be prevented or detected by the clients internal control.

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Short Notes (Audit)

Planned detection risk: A measure of the risk that audit evidence for a segment will fail to detect misstatement exceeding a tolerable amount, should such misstatement exist. PDR = AAR/ (IR * CR). Business risk: Risk that the auditors or audit firm will suffer harm because of a client relationship, even though the audit report rendered for the client was correct. Internal control: Internal control is the process, affected by a companys board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, the reliability of financial reporting and compliance with applicable laws, regulations and internal control. Financial statement audit: It determines whether the overall financial statements are accordance with specified criteria such as GAAP. Operational audit: Review of organizational operating procedure to evaluate efficiency and effectiveness. Inquiry: The obtaining of written or oral information from the client in response to specific questions during the audit. Direct effect illegal acts: Certain violations of laws and regulation have a direct financial effect on specific account balances in the financial statement. Transaction related objectives: Six audit objectives that must be met before the auditor can conclude that the total recorded transaction is fairly stated. Balance related audit objectives: Nine audit objectives that must be met before the auditor can conclude that any given account, balance is fairly stated. Audit process: It is a well-defined methodology for organizing an audit to ensure that the evidence gathered is both sufficient and competent and the appropriate audit objectives are both specified and met. External documents: A document that has been used by an outside party to the transaction being documented. Internal documents: A document that is prepared and used within the organization. Tolerable misstatement: The materiality allocated to any given account balance, used in audit planning.

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