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