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Financial Audit
(Gehefal, Indeperident, External) eiamination conducted by an independent putlic
accountant, intended to serve as a basis for an expression ot opinion regardiig the
fairness, consistency and conformity with accepted accounting principles of statements
prepared by a corporation or other entity for submission to the public or other interested
partes.
Cash audit
Involves the examination of transactions affecting cash during a certain perioo and
verification of cash balance at the end of said period.
Internal audit
An independent appraisal :ictivity within an organization for the review of accounting,
financial and other operations as a basis for service to management.
Complete Audit
Auditor is given unre.iiricted scope as to the work which ne is to perform.
Vouching Audit
Involves examination or "vouching" of doeuments as weli as investigation of transactions to form a
representative proportion of the whole.
Continuous Audit
One in which the auditor vIsits a client frequently during a fiscal period and at the
time of his visit brings up to date all audit work since his preceding visit.
Detailed Audit
Involves the examination in detail of all transactions and records.
Test Audit
Involves the tests of selected records and transactions sufficient to obtain an opinion
as to the overall reliabili'y of the transactions and records.
Management Audit
A comprehensive and constructive examination of a company's organizational structure, plans,
objectives, means of operations and use of human and physical facilities.
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Partial Audit
Auditor is instructed to carry out particular work only and is restricted as to his
powers of inquiry or examination.
System-Based Audit
One which emphasizes On investigating the system of internal control and its operation, backed
by test to substantiate the accuracy and reliability of the records.
Interim Audit
One that is conducted to cover a certain time or up to a certain data within a financial
period.
Analyze
To identify and c!assiiy items for further study; to resolve into elements or parts in
relation to the whole or one another.
Foot
To verify the accuracy of vertical subtotals and totals; to add a column.
Lapping
Withholding of current cash receipts without entry being made in the books until a
subsequent cash receipt is received from which the cashier pays the previously withheld
amount.
A symbol utilized oy auditors for the purpose of indicating the nature of the work
performed or cross-referencing data found in separate paces on the working paper.
Profession
Occupation based upon specialized intellectual study and training the purpose of
Which to supply skilled si,q vices or advice to others for a definite fee or salary.
Negative Confirmation
Direct communication with the debtors about the amount of the receivable where he
is asked to respond only if he disagrees with the information.
Long form Audit Report
business to safeguard its assets, check the accuracy and reliability of its accounting
data, promote operational efficiency and encourage adherence to prescribed managerial
policies.
Kiting
Cverstatement of cash by recording a deposit without a corresponding record of the
withdrawal at year-end.
Fraud
Extend
To multiply.
Audit techniques
Basic methods or ways of obtaining audit evidence; tools which the auditor uses to
gather facie needed to ,iupport his opinion.
Compare
To observe similarities and differences between similar items such as In account
From one.year to the next.
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which he has, made and expressos the opinion which he has formed in respect of the
financiaLstaiements.
Audit Procedure
Acts.performee in the ccnduct of the audit.
Subsequent events which do not have direct effect on financial statements of the
prior year but their effect may be such that disclosure is advisable; they do not require
adjusting.entries.
Materiality
Refers to relative and absolute importance of a financial disclosure or representation;
in auditing, more stringent evidence should be gathered to determine the fairness and
dependability of material financial disclosures than is necessary for less significant
representations.
Procedural errors
Errors invoMng violations of internal controls.
Observe
To watch and test a diet it action.
Natural Business year
Successor auditor
An auditor whc has accepted or has been invited to make a proposal for an engagement.
Reconcile
To establish agreen ant between separate sources of information.
Statistical Sampling
A methodology based on the mathematical theury el probabilities which iniicate that a moderately
large number of items selectee in accordance with known generally available and prescribed
procedures from a large mass will 5e almost certain to ophtain the characteristics of the large mass.
Piecemeal opinion
Opinion on specific.. hems
transaction walkthrough
Involves selection of a transaction, its documentation followed horn beginning to end tracing such
through th'.-3 complete authorization, execution and recording process.
Vouch
To prove accuracy of accounting entries by tracing to supporting documents.
Trace
To follow a transaction through the steps of the system.
Substantive Error
Errors which involve the correctness of peso amounts or the adequacy of informative
disclosures-in the financial,itatements
Relative Risk
Uncertainty regarding the occurrence of an undesirab:e event;
in auditing, more rigorous and extensive work shou;d be performed on certain types of transactions
and records wilich are more susceptible to errors and irregularities than others.
Subsequent Events
Events or transactions that occur between the balance 3heet date and the auditor's
report date that have a inateridl effect on the financial statements, and that may require
adjustment or disclasur6,in ;', r,,Incial statements.
Narrative Approach
The auditor -writes down in paragraph form the results olf his review of existing
internal cotitrols.
Positive Confirmation
Direct communication with the debtor about the amcunt of the receivable where he is
asked to respond whether or not the information is correct.
Engagement letter
Communication that documents and confirms the auditor's acceptance of the
appointment, outlines the objectives and scope of the audit, outlines the extent cf the
auditor responsibility to the client, and indicates the form of any reports to be issued by
the auditor:
Count
To enumerate a characteristics, such as the number of items in the inventory.
Cut-off statement
A bank statement for the first 8-10 business days after year end.
Check
Opinion that the financiul statements do not present fairly the financial position or
results of operations in cot IfOirlthy with generally accepted accounting principles.
Audit Program
A step-by-step plan of audit procedures to be carried out by the auditor in verifying
financial statements items or in making tests of transactions.
Auditing
Confirm
To communicate with outside parties; to authenticate internal evidence.
Internal Control Checklist
Detailed enumeration of the methods and practices which characterize good internal
control or of_the matters that should be considered in reviewing internal coWrols.
Inoil
Interim Examination
Part of the auditor's examination performed before the year-end closing date cif the
period under audit.
Independence
Personal quality of being able to maintain an unassailable impartiality in the performance -of the
CPA's work.
Principal Auditor
The auditor who is considered to have performed the major portion a:. the examination as evidenced
by such things as the materiality of the portion he examined
and his knowledge of the overall financial statements.
Non-Accounting group
Subsequent events not likely to require disclosure in the financial statements nor
adjusting entries.
Predecessor Auditor
An auditorAAO has resigned or whose services have been terminated by the client.
Operational Auditing
Audit generally performed by internal auditors to evaluate the effectiveness and
efficiency of various accounting processes.
Population/Universe
The field -of entries or documents from which the sampling is to be made.
Secret reverse
Deliberate attempt to a less favorable financial position ano/or operating
results-Than is actually the case.
Review
To study critically records, documents, transaction, events or procedures.
Verify
To prove accuracy of numbers or existence of assets by examination or comparison
with standards or refer encr, to facts.
Unqualified Opinion
Opinion in which the CPA states without reservation that the financial statements
"fairly presenr financial position and operating results in accordance with generally
accepted accounting principles wh]ch have been applied on the basis consistent with
that of the preceding year.
Special report
An audjt feport with woi dir ig other than that used for short or long -form report.
Qualified opinion
Opinions in which the independent auditor states his belief that the financial statements as
whole are fairly presented, except as to certain items on which he reserves his opinion, or takes
exception.
Internal check
Sound practices in the performance of duties and functions incorporated into the
system to provide the ineans whereby the integrity of authorizations, recordings,' and custody
of assets may ba rQasonably assured.
Inspect
To scrutinize, to investigate or critically examine a document or an asset.
Cut-off
Dividing -point between two accounting periods.
Cross foot
Tove rify the accuracy of horizontal subtotal and totals.
Audit evidence
Any available kern of fact or assertion of fact which tends to persuade the auditor's
mind that the propositions or representations in the financial statements under audit are
either true or false.
Application control
Specific' tasks pen'ornecl by EDP that provides reasonable assurance that the recording,
processing and reporting of data are pr.)perly performed.