1. Analytical procedures
    Evaluations of financial information made by a study of plausible relationships between financial and nonfinancial information.
  2. Commitment
    A contractual obligation to carry out a transaction at specified terms in the future. Material commitments should be disclosed in the financial statements.
  3. Conservatism
    An accounting doctrine for asset valuation in which the lower of two alternative acceptable asset valuations is chosen.
  4. Contingent liability
    A possible liability, stemming from past events, that will be resolved as to existence and amount by some future event.
  5. Disclosure checklist
    A list of specific disclosures required by the FASB, GASB, FASAC, and the SEC that is used to evaluate the adequacy of the disclosures in a set of financial statements.
  6. General risk contingency
    An element of the business environment that involves some risk of a future loss. Examples include the risk of accident, strike, price fluctuations, or natural catastrophe. General risk contingencies should not be disclosed in financial statements.
  7. Lawyer's letter
    A letter of inquiry sent by auditors to a client's legal counsel requesting a description and evaluation of pending or threatened litigation, unasserted claims, and other loss contingencies.
  8. Loss contingency
    A possible loss, stemming from past events, that will be resolved as to existence and amount by some future event. Loss contingencies should be disclosed in notes to the financial statements if there is a reasonable possibility that a loss has been incurred. When loss contingencies are considered probable and can be reasonably estimated, they should be accrued in the accounts.
  9. Minutes
    A formal record of the issues discussed and actions taken in meetings of stockholders and the board of directors.
  10. Representation letter
    A single letter or separate letters prepared by officers of the client company at the auditors' request setting forth certain representations about the company's financial position or operations.
  11. S-1 review
    Procedures carried out by auditors at the client company's facilities on or as close as practicable to the effective date of a registration statement filed under the Securities Act of 1933.
  12. Subsequent event
    An event occurring after the date of the balance sheet but prior to completion of the audit and issuance of the audit report.
  13. Total likely misstatement in the financial statements
    Total misstatement in the financial statements that is estimated by the auditors based on the results of audit procedures. For example, the projected misstatement from an audited sample is an estimate of the likely misstatement in the audited population.
  14. Unasserted claim
    • A possible legal claim of which no potential claimant has exhibited an awareness.
Card Set
Chapter 16 - Auditing Operations and Completing the Audit