1. Collusion
    A cooperative effort among employees to steal assets or misstate records
  2. Narrative
    A written description of the client's internal controls, including the orgin, processing, and disposition of documents & records, & relevant control procedures.
  3. Flowchart
    A diagrammatic representation of the client's documents & records & the sequence in which they are processed
  4. Income Smooting
    Form of earnings management in which revenues & expenses are shifted between periods to reduce fluctuation in earnings
  5. Premature Revenue Recognition
    Recognition of revenue before GAAP requirements for recording revenue have been met
  6. Professional Skepticism
    An attitude of the auditor that neither assumes management is dishonest nor assumes unquestioned honesty
  7. Fraud Triangle
    • Represents 3 conditions of fraud: incentives/pressures
    • opportunities
    • attitudes/rationalization
  8. 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
  9. 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
  10. 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.
  11. PCAOB
    Public Company Accounting Oversight Board
  12. 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
  13. SEC
    Securities and Exchange Commission
  14. 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
  15. Unqualified Opinion
    • 1. No identified material weaknesses
    • 2. No restrictions on the scope of work
  16. Adverse Opinion
    • - Material weaknesses exist
    • Most common when management identifies a material weakness in its report
  17. 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
  18. 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
  19. 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
  20. 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
  21. Design deficiency
    exists if a necessary control is mssing or not properly designed
  22. 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
Card Set
Audit Exam 4 - Terms