Preface To International Standards and Philippine Standards Philippine Framework For Assurance Engagements Glossary of Terms (December 2002)
Preface To International Standards and Philippine Standards Philippine Framework For Assurance Engagements Glossary of Terms (December 2002)
Preface To International Standards and Philippine Standards Philippine Framework For Assurance Engagements Glossary of Terms (December 2002)
Assistants—personnel involved in an individual audit other than the Non-sampling risk—arises from factors that cause the auditor to
auditor. reach an erroneous conclusion for any reason not related to the size
of the sample.
Assurance—(see Reasonable assurance)
Population—entire set of data from which a sample is selected and
Attendance—being present during all or part of a process being about which the auditor wishes to draw conclusions.
performed by others
Sampling risk—arises from the possibility that the auditor’s
Audit—objective of an audit of financial statements is to enable the conclusion, based on a sample may be different from the conclusion
auditor to express an opinion whether the financial statements are reached if the entire population were subjected to the same audit
prepared, in all material respects, in accordance with an identified procedure.
financial reporting framework. The phrase used to express the
auditor’s opinion is “present fairly, in all material respects. A similar Sampling unit— individual items constituting a population
objective applies to the audit of financial or other information
prepared in accordance with appropriate criteria. Statistical sampling—any approach to sampling that has the
following characteristics:
Audit evidence—information obtained by the auditor in arriving at (a) Random selection of a sample; and
the conclusions on which the audit opinion is based. Underlying (b) Use of probability theory to evaluate sample results, including
Accounting Data and Corroborating Information measurement of sampling risk.
Audit firm—firm or entity providing audit services, including where Stratification— dividing a population into subpopulations, each of
appropriate its partners, or a sole practitioner. which is a group of sampling units which have similar characteristics
(often monetary value).
Audit opinion—(see Opinion)
Tolerable error—maximum error in a population that the auditor is
Audit program—sets out the nature, timing and extent of planned willing to accept.
audit procedures required to implement the overall audit plan. The
audit program serves as a set of instructions to assistants involved in Auditor—person with final responsibility for the audit. This term is
the audit and as a means to control the proper execution of the also used to refer to an audit firm
work.
Continuing auditor—audited and reported on the prior period’s
Audit risk—auditor gives an inappropriate audit opinion when the financial statements and continues as the auditor for the current
financial statements are materially misstated. Audit risk has three period.
components: inherent risk, control risk and detection risk.
External auditor/ External Audit—used to distinguish from internal
Control risk—misstatement that could occur in an account auditor
balance or class of transactions will not be prevented or
detected and corrected on a timely basis by the accounting and Incoming auditor—current period’s auditor who did not audit the
internal control systems. prior period’s financial statements.
Detection risk—auditor’s substantive procedures will not
detect a misstatement that exists in an account balance or class Other auditor—auditor, other than the principal auditor, with
of transactions responsibility for reporting on the financial information of a
Inherent risk—susceptibility of an account balance or class of component which is included in the financial statements audited by
transactions to misstatement, assuming that there were no the principal auditor.
related internal controls.
Personnel—all partners and professional staff engaged in the audit
Audit sampling—application of audit procedures to less than 100% practice of the firm.
of items within an account balance or class of transactions such that
all sampling units have a chance of selection. Obtain and evaluate
Predecessor auditor—previously the auditor of an entity and who
audit evidence about some characteristic of the items selected in
has been replaced by an incoming auditor.
order to form or assist in forming a conclusion concerning the
population from which the sample is drawn. Audit sampling can use
either a statistical or a non-statistical approach. Principal auditor—responsibility for reporting on the financial
statements of an entity when those financial statements include
financial information of one or more components audited by
another auditor.
Auditor’s association—when the auditor attaches a report to that Electronic Data Interchange (EDI)— electronic transmission of
information or consents to the use of the auditor’s name in a documents between organizations in a machine-readable form.
professional connection.
Emphasis of matter paragraph(s)—(see Modified auditor’s report)
Comparatives—present amounts and appropriate disclosures of an
entity for more than one period, depending on the framework. The Encryption (cryptography)—transforming programs and information
frameworks and methods of presentation are as follows: into a form that cannot be understood without access to specific
(a) Corresponding figures where amounts and other disclosures for decoding algorithms (cryptographic keys) to provide an effective
the preceding period are included as part of the current period control for protecting confidential or sensitive programs and
financial statements; and information from unauthorized access or modification.
(b) Comparative financial statements where amounts and other
disclosures for the preceding period are included for comparison
Engagement letter—documents and confirms the auditor’s
with the financial statements of the current period, but do not form
acceptance of the appointment, the objective and scope of the
part of the current period financial statements.
audit, the extent of the auditor’s responsibilities to the client and
the form of any reports.
Compilation engagement—accountant is engaged to use accounting
expertise as opposed to auditing expertise to collect, classify and
Environmental matters—defined as:
summarize financial information.
(a) Initiatives to prevent, abate, or remedy damage to the
environment, or to deal with conservation of renewable and non-
Component—division, branch, subsidiary, joint venture, associated renewable resources;
company or other entity whose financial information is included in (b) Consequences of violating environmental laws and regulations;
financial statements audited by the principal auditor. (c) Consequences of environmental damage done to others or to
natural resources; and
Comprehensive basis of accounting—comprises a set of criteria (d) Consequences of vicarious liability imposed by law (for example,
used in preparing financial statements which applies to all material liability for damages caused by previous owners).
items and which has substantial support.
Environmental performance report—report, separate from the
Computation—checking the arithmetical accuracy of source financial statements, in which an entity provides third parties with
documents and accounting records or of performing independent qualitative information on the entity’s commitments towards the
calculations. environmental aspects of the business, its policies and targets in
that field, its achievement in managing the relationship between its
Computer-assisted audit techniques—applications of auditing business processes and environmental risk, and quantitative
procedures using the computer as an audit tool are known as information on its environmental performance.
Computer Assisted Audit Techniques (CAATs).
Environmental risk—may be included in assessment inherent risk
Computer information systems—exists when a computer of any for the development of the overall audit plan
type or size is involved in the processing by the entity of financial
information of significance to the audit, whether that computer is Error—unintentional mistake in financial statements.
operated by the entity or by a third party.
Expert—person or firm possessing special skill, knowledge and
Confirmation—(see External confirmation) experience in a particular field other than accounting and auditing.
Control environment—comprises the overall attitude, awareness External confirmation—obtaining and evaluating audit evidence
and actions of directors and management regarding the internal through a direct communication from a third party in response to a
control system and its importance in the entity. request for information about a particular item affecting assertions
made by management
Control procedures—policies and procedures in addition to the
control environment which management has established to achieve Fair Value—amount for which an asset could be exchanged, or a
the entity’s specific objectives. liability settled, between knowledgeable, willing parties in an arm’s
length transaction.
Corporate Governance—(see Governance)
Financial statements—balance sheets, income statements or profit
Database—collection of data that is shared and used by a number of and loss accounts, statements showing either all changes in equity
different users for different purposes. or changes in equity other than those arising from capital
transactions with owners and distributions to owners, cash flow
statements, notes and other statements and explanatory material
Disclaimer of opinion—(see Modified auditor’s report)
which are identified as being part of the financial statements.
Emphasis of matter paragraph(s)—adding an emphasis of matter Planning—developing a general strategy and a detailed approach for
paragraph(s) to highlight a matter affecting the financial statements the expected nature, timing and extent of the audit.
which is included in a note to the financial statements that more
extensively discusses the matter. Post balance sheet events—(see Subsequent events)
Matters That Do Affect the Auditor’s Opinion Programming controls—prevent or detect improper changes to
computer programs that are accessed through on-line terminal
Qualified opinion—auditor concludes that an unqualified opinion devices. Access may be restricted by controls such as the use of
cannot be expressed but the effect of any disagreement with separate operational and program development libraries and the
management, or limitation on scope is not that material and use of specialized program library software.
pervasive to require an adverse opinion or a disclaimer of opinion.
Projection—prospective financial information prepared on the basis
Disclaimer of opinion—expressed when the possible effect of a of:
limitation on scope is so material and pervasive that the auditor has (a) Hypothetical assumptions about future events and management
not been able to obtain sufficient appropriate audit evidence and actions which are not necessarily expected to take place; or
accordingly is unable to express an opinion on the financial (b) A mixture of best-estimate and hypothetical assumptions.
statements.
Prospective financial information—based on assumptions about
Adverse opinion—expressed when the effect of a disagreement is events that may occur in the future and possible actions by an
so material and pervasive to the financial statements that the entity. Prospective financial information can be in the form of a
auditor concludes that a qualification of the report is not adequate forecast, a projection or a combination of both.
to disclose the misleading or incomplete nature of the financial
statements. Public sector—national governments, regional governments, local
governments and related governmental entities
National practices (auditing) –set of auditing guidelines not having
the authority of standards defined by an authoritative body at a Quality controls—policies and procedures adopted by a firm to
country level and commonly applied by auditors in the conduct of an provide reasonable assurance that all audits done by the firm are
audit or related services. [This definition does not apply in the being carried out in accordance with objective of PSA 220
Philippines and is therefore not used.]
Reasonable assurance—high, but not absolute, level of assurance,
National standards (auditing)—set of auditing standards defined by expressed positively in the audit report as reasonable assurance,
the Auditing Standards and Practices Council or by law or regulations that the information subject to audit is free of material
or an authoritative body at the country level, the application of misstatement.
which is mandatory in conducting an audit or related services and
which should be complied with in the conduct of an audit or related Related parties—Statement of Financial Accounting Standards
services. 24/International Accounting Standard 24 (SFAS 24/IAS 24) as:
Noncompliance—acts of omission or commission by the entity being Related party—one party has the ability to control the other
audited, either intentional or unintentional, which are contrary to party or exercise significant influence over the other party in
the prevailing laws or regulations. making financial and operating decisions.
Observation—looking at a process or procedure being performed by Related party transaction—transfer of resources or obligations
others between related parties, regardless of whether a price is
charged.
Opening balances—account balances which exist at the beginning of
the period which are based upon the closing balances of the prior Related services—reviews, agreed-upon procedures and
period and reflect the effects of transactions of prior periods and compilations.
accounting policies applied in the prior period.
Review engagement—enable an auditor to state whether, anything
Opinion—included in the auditor’s report with respect to FS. An has come to the auditor’s attention that causes the auditor to
unqualified opinion is expressed when the auditor concludes that believe that the financial statements are not prepared, in all
the financial statements are presented fairly, in all material respects, material respects, in accordance with an identified financial
in accordance with the identified financial reporting framework. reporting framework.
Scope of an Audit—audit procedures deemed necessary in the Transaction logs—reports that are designed to create an audit trail
circumstances to achieve the objective of the audit. for each on-line transaction. Such reports often document the
source of a transaction (terminal, time and user) as well as the
Scope of a Review—review procedures deemed necessary in the transaction’s details.
circumstances to achieve the objective of the review.
Uncertainty—matter whose outcome depends on future actions or
Segment information—distinguishable components or industry and events not under the direct control of the entity but that may affect
geographical aspects of an entity. the financial statements.
Service organization—one that executes transactions and maintains Walk-through test—tracing a few transactions through the
related accountability or records transactions and processes related accounting system.
data (e.g., a computer information systems service organization).
Wide area network (WAN)—transmits information across an
Significance—related to materiality of the financial statement expanded area such as between plant sites, cities and nations.
assertion affected. WANs allow for on-line access to applications from remote
terminals. Several LANs can be interconnected in a WAN.
Small entity—any entity in which:
(a) There is concentration of ownership and management in a small Working papers—record of the auditor’s planning; nature, timing
number of individuals (often a single individual); and and extent of the auditing procedures performed; and results of
(b) One or more of the following are also found: such procedures and the conclusions drawn from the evidence
(i) Few sources of income; obtained. Working papers may be in the form of data stored on
(ii) Unsophisticated record-keeping; and paper, film, electronic media or other media.
(iii) Limited internal controls together with the potential for
management override of controls.