Essential terms-CH10

Assessment inquiry—inquiry to corroborate or contradict prior information obtained

Earnings management—deliberate actions taken by management to meet earnings objectives
Fraud risk factors—entity factors that increase the risk of fraud
Fraud triangle—represents the three conditions of fraud: incentives/pressures, opportunities, and
attitudes/rationalization
Horizontal analysis—analysis of percentage changes in financial statement numbers compared to the previous
period
Income smoothing—form of earnings management in which revenues and expenses are shifted between periods
to reduce fluctuations in earnings
Informational inquiry—inquiry to obtain information about facts and details the auditor does not have
Interrogative inquiry—inquiry used to determine if the interviewee is being deceptive or purposefully omitting
disclosure of key knowledge of facts, events, or circumstances
Premature revenue recognition—recognition of revenue before accounting standards requirements for recording
revenue have been met
Vertical analysis—analysis in which financial statement numbers are converted to percentages of a base; also
called common- size financial statements