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. Evidence: Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria. 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. 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. 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. 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. 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.

Jamal Hossain Shuvo

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Short Notes (Audit)

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. 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. 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. 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.

Jamal Hossain Shuvo

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Short Notes (Audit)

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. 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.

Jamal Hossain Shuvo

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