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Collusion
A cooperative effort among employees to steal assets or misstate records
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Narrative
A written description of the client's internal controls, including the orgin, processing, and disposition of documents & records, & relevant control procedures.
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Flowchart
A diagrammatic representation of the client's documents & records & the sequence in which they are processed
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Income Smooting
Form of earnings management in which revenues & expenses are shifted between periods to reduce fluctuation in earnings
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Premature Revenue Recognition
Recognition of revenue before GAAP requirements for recording revenue have been met
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Professional Skepticism
An attitude of the auditor that neither assumes management is dishonest nor assumes unquestioned honesty
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Fraud Triangle
- Represents 3 conditions of fraud: incentives/pressures
- opportunities
- attitudes/rationalization
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Monitoring
Ongoing or periodic assessment of the quality of internal control by management to determine that controls are operating as intended & they are modified as needed for changes in conditions
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COSO Internal Control
Committee of Sponsoring Organizations of the Treadway Commission
- 1. Control Environment
- 2. Risk Assessment
- 3. Control Activities
- 4. Information & Communication
- 5. Monitoring
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COSO - define
Guidance on monitoring interal control systems to help organizations improve the effectiveness & efficiency of their interal control systems, through more efficient & effective monitoring procedures.
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PCAOB
Public Company Accounting Oversight Board
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PCAOB - define
Board created by SOX to oversee auditors of public co's including establishing auditing & quality control standards & performing inspections of registered accounting firms
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SEC
Securities and Exchange Commission
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SEC - define
A federal agency that oversees the orderly conduct of the securities markets; assist in providing investors in public corporations woth reliable information upon which to make investment decisions
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Unqualified Opinion
- 1. No identified material weaknesses
- 2. No restrictions on the scope of work
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Adverse Opinion
- - Material weaknesses exist
- Most common when management identifies a material weakness in its report
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Qualified or Disclaimer
Issued when auditor is unable to determine if there are material weaknesses due to a restriction of scope or unable to obtain significant evidence
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Control deficiency
a deficiency in the design or operation of controls that does not permit company personnel to prevent or detect misstatements on a timely basis
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Significant deficiency
one or more control deficiencies exist that is less severe than a meterial weakness, but important enough to merit attention by those responsible for oversight of the company's financial reporting
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Material Weakness
a significan deficiency in internal control that, by itself, or in combination with other significant deficiencies, result in a reasonable possibility that a material misstatement of financial statements will not be prevented or detected
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Design deficiency
exists if a necessary control is mssing or not properly designed
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Operation deficiency
exists if a well-designed control does not operate as designed or if the person performing the control is insufficiently qualified or authorized
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