Core accounting and audit vocabulary tested on the CPA exam.
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- What does GAAP stand for?
- Generally Accepted Accounting Principles
- Define materiality in an audit context.
- The threshold below which an error or omission is unlikely to influence economic decisions of users.
- What is an unqualified audit opinion?
- An opinion stating that financial statements are presented fairly in all material respects in conformity with GAAP.
- What is a qualified audit opinion?
- An opinion that the financial statements are fairly presented except for specific identified matters not in conformity with GAAP.
- Define adverse audit opinion.
- An opinion that financial statements are not fairly presented in conformity with GAAP.
- What is a disclaimer of opinion?
- An auditor's refusal to express an opinion on financial statements due to a significant scope limitation.
- Define substantive procedures.
- Audit procedures designed to detect material misstatements at the assertion level in account balances and transaction classes.
- What is a test of control?
- An audit procedure performed to evaluate the effectiveness of the design or operation of an internal control.
- Define audit evidence.
- Information used by the auditor in reaching conclusions on which the audit opinion is based.
- What is sufficiency of audit evidence?
- The measure of the quantity of audit evidence, whether the auditor has examined enough sources.
- What is appropriateness of audit evidence?
- The measure of the quality of audit evidence, whether it is relevant and reliable.
- Define working papers.
- Records kept by the auditor of the procedures performed, evidence obtained, and conclusions reached during an audit.
- What is the audit risk model?
- Audit Risk equals Inherent Risk times Control Risk times Detection Risk.
- Define inherent risk.
- The risk that an account balance or transaction could be misstated before considering internal controls.
- Define control risk.
- The risk that internal controls will not prevent or detect a misstatement.