Auditing - Ch. 9
Terms
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- Acceptable Audit Risk
- A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed + unqual. op
- Allocation of the Prelimnary Judgment about Materiality
- The process of assigning to each balance sheet account the misstatement amount to be considered material for that account based on the auditors J.
- Audit Assurance
- A complement to acceptable audit risk; an acceptable audit risk of 2% is the same as audit assurance of 98%; aka overall assurance + level of assurance
- Audit Risk Model
- A formal model reflecting the relationships between acceptable audit risk (AAR), inherent risk (IR), control risk (CR), planned detect. risk; PDR=AAR/(IRxCR)
- Control Risk
- A measure of the auditor's asmt. of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented/detec./IC
- Direct Projection Estimate of Misstatement
- Estimate of likely misstatement in a population based on a sample, exluding sampling risk + calculated as (net misstatemtns in sample/total samp)*TR pop.V
- Engagement Risk
- The risk that the auditor or audit firm will suffer harm because of a client relat., even though the audit report rendered for client was correct
- Inherent Risk
- A measure of the auditor's assessment of the likelihood that there are material misstatements in a segment before considering eff. of IC
- Materiality
- The magnitude of an omission or misstatement of accounting info that in light of circ., makes it probable that the judgment of a reasonbl. person would be influ.
- Planned Detecion Risk
- A measure of the risk that audit evidence for a segment will fail to detect mistmts. exceeding a tolerable amount, if mistmts. exist: PDR=AAR/(IRxCR)
- Preliminary Judgment about Materiality
- The max. amount by which the auditor believes that the stmts. could be misstated and still not affect the decisions of reasonable users - Audit Plan.
- Revised Judgment about Materiality
- A change in the auditor's prelim. judgment made when the auditor determines that the prelim. judgment was too large or too small
- Risk
- The acceptance by auditors that there is some level of uncertainty in performing the audit function
- Sampling Error
- Results because the auditor has sampled only a portion of the population
- Tolerable Misstatement
- The materiality allocated to any given account balance; used in audit planning