CHAPTER 1 ∙ Auditing: Integral to the Economy

Adverse opinion
An adverse opinion should be expressed when the auditor believes that
the financial statements taken as a whole are not presented fairly in
conformity with GAAP or when the auditor believes that the client’s
internal controls are not effective.
American Institute of Certified Public Accountants (AICPA)
The primary professional organization for CPAs, it has a number of
committees to develop professional standards for the conduct of
nonpublic company audits and other services performed by its
members and to self-regulate the profession.
Audit quality
Performing an audit in accordance with generally accepted auditing
standards (GAAS) to provide reasonable assurance that the audited
financial statements and related disclosures are presented in
accordance with GAAP and providing assurance that those financial
statements are not materially misstated whether due to errors or
Center for Audit Quality (CAQ)
An organization affiliated with the AICPA that is dedicated to enhancing
investor confidence and trust in the financial markets.
Commission (COSO)
An organization that provides thought leadership and guidance on
enterprise risk management, internal control and fraud deterrence.
Concurring partner review
Occurs when an audit partner not otherwise involved in the audit
independently reviews each audit to make sure that documented
evidence supports the audit opinion. Otherwise known as an
engagement quality review.
Due professional care
A standard of care expected to be demonstrated by a competent
professional in his or her field of expertise, set by the generally
accepted auditing standards but supplemented in specific
implementation instances by the standard of care expected by a
reasonably prudent auditor.
Engagement letter
States the scope of the work to be done on the audit so that there can
be no doubt in the mind of the client, external auditor, or the court
system as to the expectations agreed to by the external auditor and
the client.
Engagement quality review

International Auditing and Assurance Standards Board (IAASB) A part of the International Federation of Accountants that is responsible for issuing auditing and assurance standards. including the AICPA. GAAP has general acceptance and provides criteria by which to assess the fairness of a financial statement presentation. Otherwise known as a concurring partner review. Integrated audit Type of audit provided when an external auditor is engaged to perform an audit of the effectiveness of internal control over financial reporting (“the audit of internal control over financial reporting”) that is integrated with an audit of the financial statements. International Accounting Standards Board (IASB) This organization issues IFRS (International Financial Reporting Standards) and is working to be the one provider of accounting standards around the world. Generally accepted accounting principles (GAAP) GAAP refers to generally accepted accounting principles for financial reporting. Generally accepted auditing standards (GAAS) GAAS refers to professional external auditing standards that are followed by auditors when conducting a financial statement audit. We recognize that GAAS are set by several bodies. International Standards for Auditing (ISAs) Standards issued by the IAASB for all auditors who are following international auditing standards. when we refer to professional external auditing standards. Interoffice review . we will use the term GAAS (generally accepted auditing standards). Financial statement audit A systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. Throughout the text we recognize that the criteria may be developed by either FASB or the IASB. and the PCAOB. Throughout the text. the IAASB. Its goal is to harmonize auditing standards on a global basis.CHAPTER 1 ∙ Auditing: Integral to the Economy 2 Occurs when an audit partner not otherwise involved in the audit independently reviews each audit to make sure that documented evidence supports the audit opinion.

CHAPTER 1 ∙ Auditing: Integral to the Economy 3 A review of one office of the audit firm by professionals from another office to assure that the policies and procedures established by the firm are being followed. Public Company Accounting Oversight Board (PCAOB) A quasipublic board. It has the authority to set auditing standards for the audits of public companies. . Professional skepticism An attitude that includes a questioning mind and critical assessment of audit evidence. appointed by the SEC. Securities and Exchange Commission (SEC) The governmental body with the oversight responsibility to ensure the proper and efficient operation of capital markets in the United States. Sarbanes-Oxley Act of 2002 Broad legislation mandating new standard setting for audits of public companies and new standards for corporate governance. to provide oversight of the firms that audit public companies registered with the SEC. Unqualified audit report The standard three-paragraph audit report that describes the auditor’s work and communicates the auditor’s opinion that the financial statements are fairly presented in accordance with GAAP.