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1
Assurance
services
independent professional services that improve the quality of information or
its context for decision-makers.
2
Material
3
Professional
scepticism
information is material if its omission or misstatement could influence
decisions that the primary users of general-purpose financial reports make
based on those reports.
an attitude that includes a questioning mind, being alert to conditions which
may indicate possible misstatement, and a critical assessment of evidence.
4
Assurance
engagement
an engagement in which a practitioner expresses a conclusion designed to
enhance the degree of confidence of the intended users, other than the
responsible party, about the outcome of the evaluation or measurement of
a subject matter against criteria.
5
Corporate
governance
the system by which business corporations are directed and controlled.
The corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation … and spells
out the rules and procedures for making decisions on corporate affairs. By
doing this, it also provides the structure through which the company
objectives are set, and the means of attaining those objectives and
monitoring performance.
6
– OECD
Those charged
individuals with responsibility for overseeing the strategic direction of the
with governance entity and obligations related to the accountability of the entity, including
(TCWG)
overseeing the financial reporting process.
7
Management
8
Acceptable level
9
Safeguards
10
Public interest
entity (PIE)
11
Public interest
– ISA 260
individuals with executive responsibility for the conduct of the entity's
operations.
– ISA 260
a level at which a reasonable and informed third party would likely
conclude that the professional accountant complies with the fundamental
principles.
actions, individually or in combination, taken by the professional
accountant that effectively eliminate threats to compliance with the
fundamental principles or reduce them to an acceptable level.
a listed entity, an entity required by a regulator to be audited as if it were
listed, or an entity of significant public interest due to size or nature of
business.
the values and principles relating to the public good, or what is in the best
interests of society.
12
Preconditions
for an audit
management and, where appropriate, TCWG use an acceptable financial
reporting framework to prepare the financial statements and agree to the
premise on which an audit is conducted.
13
Audit
documentation
the record of audit procedures performed, relevant audit evidence
obtained, and the auditor’s conclusions.
14
Inherent risk
factors
characteristics of events or conditions that affect susceptibility to
misstatement, whether due to fraud or error, of an assertion about a class
of transactions, account balance or disclosure, before consideration of
controls. Such factors may be qualitative or quantitative.
15
Risk
assessment
procedures
audit procedures designed and performed to identify and assess the risks
of material misstatement, whether due to fraud or error, at the financial
statement and assertion levels.
16
Audit risk
the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated. It is a function of the risks of
material misstatement and detection risk. (ISA 200)
17
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
considering any related controls.
18
Relevant
assertion
an assertion about a class of transactions, account balance or disclosure
that has an identified risk of material misstatement.
19
Significant risk
an identified risk of material misstatement:
•
20
Control risk
For which the assessment of inherent risk is close to the upper
end of the spectrum of inherent risk; or
• That is to be treated as a significant risk in accordance with the
requirements of other ISAs.
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 in aggregate with other misstatements) will not be:
•
•
prevented; or
detected and corrected, on a timely basis,
by the entity’s controls.
21
Detection risk
the risk that audit procedures performed to reduce audit risk to an
acceptably low level will not detect a misstatement that exists and that
could be material (either individually or in aggregate).
22
System of
internal control
the system designed, implemented and maintained by TCWG,
management and other personnel to provide reasonable assurance about:
•
•
•
the reliability of financial reporting;
the effectiveness and efficiency of operations; and
compliance with applicable laws and regulations.
the policies and procedures that help ensure that management directives
are carried out.
23
Control
activities
24
Materiality
information is material if its omission or misstatement could influence the
decisions of primary users taken on the basis of the financial statements.
Materiality depends on the nature and/or size of the items to which the
information relates. It is entity specific.
25
Performance
materiality
the 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.
26
Error
unintentional mistakes in financial statements, including the omission of an
amount or disclosure.
27
Fraud
an intentional act by one or more individuals that uses deception to obtain
an unjust or illegal advantage.
28
Fraud risk
factors
events or conditions that indicate an incentive or pressure to commit fraud
or provide an opportunity to commit fraud.
29
Non-compliance
acts of omission or commission, intentional or unintentional, committed by
the entity, TCWG, management or other individuals working under the
direction of the entity, which are contrary to the prevailing laws or
regulations. Non-compliance includes personal misconduct related to
business activities (e.g. accepting a bribe from a supplier) but does not
include personal misconduct unrelated to business activities.
30
IT environment
the IT applications and supporting IT infrastructure, and the IT processes
and personnel involved in those processes, that are used to support
business operations and achieve business strategies.
31
General IT
controls
controls over the IT processes that support the continued proper operation
of the IT environment, including the continued effective functioning of
information processing controls and the integrity of information (i.e. the
completeness, accuracy and validity of information) in the information
system.
32
Information
processing
controls
33
Test of controls
34
Direct control
35
Indirect control
controls that support direct controls.
36
Deficiency
in internal control – exists when:
controls relating to the processing of information in IT
applications or manual information processes that directly address risks to
the integrity of information (i.e. the completeness, accuracy and validity of
transactions and other information).
an audit procedure designed to evaluate the operating effectiveness of
controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
controls that are precise enough to address risks of material misstatement
at the assertion level.
•
37
Significant
deficiency
38
Internal audit
A control is designed, implemented or operated in such a way
that it is unable to prevent, or detect and correct, misstatements
in the financial statements on a timely basis; or
• A control necessary to prevent or detect and correct
misstatements in the financial statements on a timely basis is
missing.
a deficiency (or combination of deficiencies) that is of sufficient importance
to merit the attention of TCWG.
an independent, objective assurance and consulting activity designed to
add value and improve an organisation's operations. It helps an
organisation accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management,
control and governance processes.
39
Outsourcing
– Institute of Internal Auditors IIA
the process of contracting out one or more elements of operations to a
service provider outside of the organisation's management structure.
40
Value for money
auditing
the evaluation of management's achievements in terms of the economy,
efficiency and effectiveness (the "3 Es") of operations.
41
Best value
a duty to deliver services to clear standards – covering both cost and
quality – by the most effective, economical and efficient means available.
42
Regulatory
compliance
adhering to the rules and regulations applicable to an activity prescribed by
an external agency or authority.
43
Customer
service
the sum total of what an organisation does to meet customer expectations
and produce customer satisfaction.
44
Customer
experience
what a customer feels and remembers about the customer service
received.
– Institute of Customer Service
representations, explicit or otherwise, with respect to the recognition,
measurement, presentation and disclosure of information in the financial
statements which are inherent in management representing that the
financial statements are prepared in accordance with the applicable
financial reporting framework.
45
Assertions
46
Analytical
procedures
evaluations of financial information through analysis of plausible
relationships between 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.
47
Accounting
estimate
an approximation of a monetary amount in the absence of a precise means
of measurement.
48
Estimation
uncertainty
the susceptibility of an accounting estimate and related disclosures to an
inherent lack of precision in its measurement.
49
Management's
expert
50
Auditor's expert
An individual or organisation possessing expertise in a field other than
accounting or auditing, whose work in that field is used by the entity to
assist the entity in preparing the financial statements. (ISA 500 Audit
Evidence)
An individual or organisation with expertise in a field other than accounting
or auditing, whose work is used by the auditor in obtaining sufficient
appropriate audit evidence. (ISA 620 Using the Work of an Auditor’s
Expert)
51
Competence
possession of a level of expertise.
52
Capability
the ability to exercise competence.
53
Objectivity
the possible effects that bias, conflict of interest or the influence of others
may have on the expert's judgment.
54
Direct
assistance
the use of internal auditors to perform audit procedures under the direction,
supervision and review of the external auditor.
55
Service
organisation
a third-party organisation that provides services to user entities that are
relevant to those entities' information systems relevant to financial
reporting.
56
Audit sampling
applying audit procedures to less than 100% of items in a population, such
that all sampling units have a chance of selection, in order to draw a
conclusion about the population.
57
Anomaly
58
Population
59
Sampling risk
60
Confidence level the mathematical complement of risk (e.g. 5% risk = 95% confidence).
61
Non-sampling
risk
arises from factors that cause the auditor to reach an erroneous conclusion
for any reason not related to the size of the sample. For example, the
auditor might use inappropriate procedures or misinterpret evidence and
fail to recognise a deviation or misstatement. (Judgmental selection is
subject to non-sampling risk.)
62
Sampling unit
the individual items that constitute a population, for example, credit entries
on bank statements, sales invoices, trade receivable balances or a
monetary unit ($1).
63
Statistical
sampling
any approach to sampling that has the following characteristics:
64
Stratification
65
Tolerable
misstatement (in
tests of details)
Tolerable rate of
deviation (in
tests of
controls)
Written
representations
66
67
a misstatement or deviation that is demonstrably not representative of
misstatements or deviations in a population (e.g. because it arises from an
isolated event that has not reoccurred other than on specifically identifiable
occasions).
the entire set of data from which the auditor wishes to sample (e.g. all
items in an account balance or a class of transactions).
the risk that arises from the possibility that the auditor's conclusion, based
on a sample, may be different from the conclusion that would be reached if
the entire population were subjected to the same audit procedure.
a.
random selection of a sample; and
b. use of probability theory to evaluate sample results, including
measurement of sampling risk.
the process of dividing a population into subpopulations, each of which is a
group of sampling units with similar characteristics (often monetary value).
the highest misstatement that could occur before the population would be
considered materially misstated.
the highest deviation rate (i.e. the proportion of items with deviations from
controls) the auditor could accept and still conclude that the design and
operation of an internal control over the population is effective.
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.
68
Automated tools a broad term for the tools and techniques used by auditors in performing
and techniques
audit procedures.
(ATTs)
69
Test data
data (valid and invalid) generated by the auditor and processed through the
client's system to enable the auditor to assess the effectiveness of
programmed controls.
70
Audit software
software ("computer audit programs") specially designed for audit
purposes. It is used to process and analyse the client's data independently
of the client's program, to verify the system’s accuracy.
71
Data analytics
the science of examining raw data to draw insights from it.
72
Asset
a present economic resource controlled by the entity due to past events.
73
Intangible asset
an identifiable non-monetary asset without physical substance.
74
Cost
includes:
•
Purchase price, non-recoverable taxes (e.g. import duties),
transport, handling and other costs directly attributable to the
acquisition of finished goods, materials and services.
• Direct production costs (including production overheads) for
work-in-progress.
• Other costs only to the extent incurred in bringing the inventories
to their present location and condition (e.g. maturing costs for
brandy, cheese, seasoned wood).
the estimated selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs necessary to make
the sale.
75
Net realisable
value
76
External
confirmation
audit evidence obtained as a direct written response to the auditor from a
third party in paper form or by electronic or other medium.
77
Liability
a present obligation arising from past events, the settlement of which is
expected to result in an outflow of resources.
78
Provision
a liability of uncertain timing or amount.
79
Obligating event
an event that creates a legal or constructive obligation that the entity is
bound to settle.
80
Contingent
liability
•
•
a possible obligation that arises from past events and whose
existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly
within management's control; or
a present obligation that arises from past events which cannot be
recognised because:
1. an outflow of resources is not probable; or
2. the amount cannot be measured with sufficient
reliability.
81
Contingent
asset
a possible asset that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within management's control.
82
Owner-manager
a proprietor involved in the day-to-day running of a smaller entity.
83
Not-for-profit
organisation
(NFP)
an organisation that does not distribute its surplus funds to owners or
shareholders but instead uses them to help pursue its goals.
84
Misstatement
(ISA 450)
a difference between the amount, classification, presentation or disclosure
of a reported financial statement item and what is required for that item in
accordance with the applicable financial reporting framework.
Misstatements can arise from error or fraud.
85
Uncorrected
misstatements
misstatements that the auditor has accumulated during the audit and that
have not been corrected.
86
Other
information
financial or non-financial information (other than the financial statements
and auditor's report) included in an entity's annual report.
87
Annual report
a document or combination of documents prepared annually by
management or TCWG to provide owners and stakeholders with
information on the entity's operations, financial results and financial
position.
88
Events after the
reporting period
89
Subsequent
events
90
Key audit
matters (KAM)
those events, both favourable and unfavourable, that occur between the
end of the reporting period and the date on which the financial statements
are authorised for issue.
– IAS 10 Events after the Reporting Period
events occurring between the date of the financial statements and the date
of the auditor's report and facts that become known after the date of the
auditor's report.
– ISA 560 Subsequent Events
those matters that, in the auditor's professional judgement, were of most
significance in the audit of the financial statements of the current period.
They are selected from matters communicated with TCWG.
91
Pervasive
effects on the financial statements which, in the auditor's judgement:
i.Are not confined to specific elements, accounts or items of the financial
statements;
ii.
If so confined, represent or could represent a substantial
proportion of the financial statements; or
iii.
In relation to disclosures, are fundamental to users'
understanding of the financial statements.
92
Going concern
an entity that will continue to operate for the foreseeable future and has
neither the intention nor the need to liquidate or significantly reduce the
scale of its operations.
93
Foreseeable
future
a period of at least, but not limited to, 12 months from the end of the
reporting period.
94
Material
uncertainty
an uncertainty related to events or conditions which may cast significant
doubt on the entity's ability to continue as a going concern.
95
"Close-call"
scenario
identified events or conditions that may cast significant doubt on an entity's
ability to continue as a going concern exist, but on balance, after much
analysis, it is concluded that management’s mitigating plans are just about
sufficient.
96
Internal auditing
an independent, objective assurance and consulting activity designed to
add value and improve an organisation’s operations. It helps an
organisation accomplish its objectives by bringing a systematic, disciplined
approach to evaluating and improving the effectiveness of risk
management, control, and governance processes.
97
Engagement
quality review
– The Institute of Internal Auditors (IIA)
an objective evaluation of the significant judgments made by the
engagement team and the conclusions reached thereon, performed by the
engagement quality reviewer and completed on or before the date of the
engagement report.
98
Engagement
quality reviewer
a partner, other individual in the firm, or an external individual, appointed by
the firm to perform the engagement quality review.
99
Applicable
financial
reporting
framework
the financial reporting framework adopted by management in the
preparation of the financial statements that is acceptable in view of the
nature of the entity and the objective of the financial statements or that is
required by law or regulation.
100 Reasonable
assurance
a high, but not absolute, level of assurance.
101 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.
102 Accounting
records
- the records of initial accounting entries and supporting records (e.g.
records of electronic fund transfers, invoices, contracts);
- the general and subsidiary ledgers, journal entries and other adjustments
to the financial statements that are not reflected in formal journal entries;
and
- records such as work sheets and spreadsheets supporting cost
allocations, computations, reconciliations and disclosures.
103 Contingent fees
fees calculated on a predetermined basis relating to the outcome of a
transaction or the result of the services performed.
104 Control
environment
the combination of an organisation's governance and management
functions and the attitudes, awareness and actions of TCWG concerning
internal control.
105 Walk-through
test
the tracing of transactions through a financial system.
106 Substantive
procedure
an audit procedure designed to detect material misstatements at the
assertion level.
107 Public interest
the values and principles relating to the public good, or what is in the best
interests of society.
108 Management
bias
a lack of neutrality by management in the preparation of information.
109 Controls
policies or procedures to achieve the control objectives of management or
those charged with governance.
110 Policies
statements of what should, or should not, be done within the entity to effect
control.
111 Procedures
actions to implement policies.
112 Audit evidence
information used by the auditor in arriving at the conclusions on which the
audit opinion is based. It includes information contained in the accounting
records underlying the financial statements and information from other
sources.
the systematic allocation of the depreciable amount of an asset over its
useful life.
113 Depreciation
114 Depreciable
amount
the cost of an asset, or other amount substituted for cost (i.e. revalued
amount), less its residual value.