Analytical procedures—evaluations of financial information through analysis of plausible relationships
among financial and nonfinancial data Balance-related audit objectives—eight audit objectives that must be met before the auditor can conclude that any given account balance is fairly stated; the general balance related audit objectives are existence, completeness, accuracy, classification, cutoff, detail tie-in, realizable value, and rights and obligations Cycle approach—a method of dividing an audit by keeping closely related types of transactions and account balances in the same segment Error—an unintentional misstatement of the financial statements Fraud—an intentional misstatement of the financial statements Fraudulent financial reporting—intentional misstatements or omissions of amounts or disclosures in financial statements to deceive users; often called management fraud Management assertions—implied or expressed representations by management about classes of transactions, related account balances, and presentation and disclosures in the financial statements Misappropriation of assets—a fraud involving the theft of an entity’s assets; often called defalcation Noncompliance with laws and regulations—failure to comply with applicable laws and regulations; often referred to as illegal acts Phases of the audit process—the four aspects of a complete audit: (1) plan and design an audit approach, (2) perform tests of controls and substantive tests of transactions, (3) perform substantive analytical procedures and tests of details of balances, and (4) complete the audit and issue an audit report Presentation and disclosure-related audit objectives—four audit objectives that must be met before the auditor can conclude that presentation and disclosures are fairly stated; the four presentation and disclosure- related audit objectives are occurrence and rights and obligations, completeness, accuracy and valuation, and classification and understandability Professional skepticism—an attitude of the auditor that includes a questioning mind that is alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence Relevant assertions—assertions that have a meaningful bearing on whether an account is fairly stated and used to assess the risk of material misstatement and the design and performance of audit procedures Risk assessment procedures—audit procedures performed to obtain an understanding of the entity and its environment, including the entity’s internal control, to identify and assess the risks of material misstatement Substantive analytical procedure—an analytical procedure in which the auditor develops an expectation of recorded amounts or ratios to provide evidence supporting an account balance Substantive tests of transactions— audit procedures testing for monetary misstatements to determine whether the six transaction-related audit objectives have been satisfied for each class of transactions Tests of controls—audit procedures to test the effectiveness of controls in support of a reduced assessed control risk Tests of details of balances—audit procedures testing for monetary misstatements to determine whether the eight balance related audit objectives have been satisfied for each significant account balance Transaction-related audit objectives—six audit objectives that must be met before the auditor can conclude that the total for any given class of transactions is fairly stated; the general transaction-related audit objectives are occurrence, completeness, accuracy, classification, timing, and posting and summarization