Chapter 3 - Vocabulary

Question 1

Analytical Procedures.

Answer 1

The reasonableness tests used to gain an understanding of financial statement accounts and relationships.

Question 2

Audit Documentation

Answer 2

The written basis for the auditor’s conclusion that provides the necessary support for the auditor’s assertions and representations made in the auditor’s report.

Question 3

Audit Engagement Partner

Answer 3

The person with the final responsibility for the audit, and usually an industry specialist.

Question 4

Audit Plan

Answer 4

A comprehensive list of the specific audit procedures that the audit team needs to perform to gather sufficient appropriate evidence on which to base their opinion on the financial statements. The professional standards require that the auditor plan each audit engagement, including the establishment of an overall strategy for each audit engagement.

Question 5

Audit Trail

Answer 5

The chain of evidence provided through coding, cross-references, and documentation connecting account balances and other summary results with the original transaction source documents.

Question 6

Continuing Audit Files

Answer 6

The audit documentation containing information of continuing audit significance for current and past audits of the same client.

Question 7

Engagement Letter

Answer 7

This letter sets forth the understanding with the client, including in particular the objectives of the engagement, management’s responsibilities, the auditor’s responsibilities, and any limitations of the engagement.

Question 8

Form 8-K

Answer 8

The “special events report” filed with the SEC whenever certain significant corporate events such as changes in control, legal proceedings, and changes of auditor occur.

Question 9

Interim Audit Work

Answer 9

The procedures performed several weeks or months before the balance sheet date.

Question 10

Lead Schedule

Answer 10

A summary of the accounts in or components of an account group.

Question 11

Materiality

Answer 11

An amount or event that is likely to influence financial statement users decisions.

Question 12

Planning Memorandum

Answer 12

The document summarizing the preliminary analytical procedures and the materiality assessment with specific directions about the effect on the audit.

Question 13

Predecessor Auditor

Answer 13

The public accounting firm that has been terminated or has voluntarily withdrawn from an audit engagement.

Question 14

Quality Assurance Partner

Answer 14

The second audit partner on the audit team as required for audits of financial statements filed with the SEC who reviews the audit team’s work in critical audit areas.

Question 15

Specialists

Answer 15

The persons skilled in fields other than accounting and auditing - actuaries, appraisers, attorneys, engineers, and geologists - who are not members of the public accounting firm.

Question 16

Substantive Audit Plan

Answer 16

Document that contains a list of audit procedures for gathering evidence related to the relevant assertions identified for the significant financial statement account and disclosures on an audit client.

Question 17

Termination Letter

Answer 17

The documentation provided to former clients dealing with the subject for future services, in particular (1) axis to audit documentation by new auditors, (2) re-issuance of the auditors report when required for SEC reporting or comparative financial reporting, and (3) fee arrangements for such future services. The termination letter also can contain a report of the auditor’s understanding of the circumstances of termination.

Question 18

Tracing

Answer 18

An audit procedure in which the auditor selects a basic source documents and follows it’s processing path forward to find its final recording in a summary journal or ledger. In practice, however, the term tracing may be used to describe following the path in either direction.

Question 19

Vouching

Answer 19

An audit procedure in which an auditor selects an item of financial information, usually from a journal or ledger, and follows its path back through the processing steps to its origin.

Question 20

Year-End Audit Work

Answer 20

The procedures performed shortly before and after the balance sheet date.