ATD Level III
Principles of Auditing glossary
Every term this guide defines, A to Z, each with the chapter that teaches it. Open it when a word in a question is unfamiliar, and test yourself on it in the last week: cover the definition and say it in one sentence.
35 terms from the free first chapter
A
- Accounting system and internal control
The auditor must understand the entity's accounting system and internal controls (see the chapter on risks, errors and fraud) well enough to assess the risk of material misstatement.
Taught in Foundations of auditing
- Advocacy
The firm promotes the client's position, for example by acting for it in litigation or in raising finance.
Taught in Foundations of auditing
- An audit
The specific engagement carried out: the process of gathering and evaluating evidence about an entity's financial statements to express an opinion on their fairness.
Taught in Foundations of auditing
- Audit conclusions and reporting
The auditor must review and assess the conclusions drawn from the evidence obtained, and express a clear opinion in an audit report (see the chapter on the audit report).
Taught in Foundations of auditing
- Audit evidence
The auditor must obtain sufficient, appropriate evidence (see the chapter on audit evidence) to support the opinion given.
Taught in Foundations of auditing
- Auditing
The systematic, independent examination of an entity's financial statements and underlying records, to form and express an opinion on whether they give a true and fair view.
Taught in Foundations of auditing
- Auditor
A suitably qualified, independent professional appointed to examine an entity's financial statements and express an opinion on them.
Taught in Foundations of auditing
C
- Confidentiality
The auditor must not disclose information obtained during the audit to third parties without proper authority, nor use it for personal advantage.
Taught in Foundations of auditing
- Creditors
Rely on the audit opinion for extra confidence the entity can meet its obligations.
Taught in Foundations of auditing
D
- Directors
Use the audit process itself, and its findings on internal control, to discharge their own governance responsibilities.
Taught in Foundations of auditing
- Documentation
The auditor must maintain proper working papers (see the chapter on audit evidence) recording the evidence obtained and conclusions reached.
Taught in Foundations of auditing
- Duties
The auditor's duties are:
- To carry out the audit with due care and skill
- To form and express an opinion on the financial statements
- To report to shareholders whether, in the auditor's opinion, the statements give a true and fair view
Taught in Foundations of auditing
E
- Employees
Rely on audited results, alongside other factors, in assessing job security and the entity's prospects.
Taught in Foundations of auditing
- External audit
An independent examination carried out by an auditor from outside the entity, typically required by law (the Companies Act) for the benefit of shareholders and other external users, culminating in a statutory audit opinion.
Taught in Foundations of auditing
F
- Familiarity
Long association, a close personal relationship, or an audit team member joining the client.
Taught in Foundations of auditing
- Final audit
Audit work carried out after the period end, once the financial statements have been drawn up, concluding with the audit opinion.
Taught in Foundations of auditing
G
- Government
Tax authorities and other agencies rely on audited figures as a more credible basis for assessment and statistics.
Taught in Foundations of auditing
I
- Integrity, Objectivity and independence
The auditor must be straightforward and honest (integrity), free from bias in forming judgements (objectivity), and free from any relationship or interest that could compromise, or appear to compromise, that objectivity (independence), the single most safeguarded principle in auditing.
Taught in Foundations of auditing
- Interim audit
Audit work carried out during the financial period, before its end, easing the workload of the final audit and allowing earlier identification of issues.
Taught in Foundations of auditing
- Internal audit
An appraisal function established within the entity itself, reporting to management or the audit committee, evaluating the effectiveness of risk management, control and governance processes, distinct from and broader in scope than the statutory external audit.
Taught in Foundations of auditing
- International standardisation agencies
Monitor how consistently auditing and accounting standards are applied in practice.
Taught in Foundations of auditing
- Intimidation
Pressure on the team, including a threatened replacement of the firm or threatened litigation.
Taught in Foundations of auditing
- Investors
Rely on it when deciding whether to buy, hold or sell a stake.
Taught in Foundations of auditing
J
- Journalists
Financial journalists and analysts read the audit opinion in reporting on an entity, the hinge point before the list turns to users inside the entity itself.
Taught in Foundations of auditing
M
- Managers
Use internal audit findings especially to improve operational control.
Taught in Foundations of auditing
O
- Obligations
To comply with auditing standards (ISAs) and the professional code of ethics (see the audit principles above), and to maintain independence throughout the engagement.
Taught in Foundations of auditing
- Owners
Rely on the audit as an independent check on how the business they own is being run.
Taught in Foundations of auditing
P
- Planning
The auditor must plan the audit (see the chapter on planning) so it is performed effectively and efficiently.
Taught in Foundations of auditing
R
- Regulatory agencies
Rely on it to check compliance with reporting and governance requirements.
Taught in Foundations of auditing
- Rights
The auditor's rights are:
- Rights of access at all times to the company's books, accounts and vouchers
- The right to require officers of the company to provide information and explanations
- The right to attend and be heard at general meetings on matters concerning the auditor
Taught in Foundations of auditing
S
- Self-interest
The firm has a financial interest in the client, a significant fee dependency, or a loan arrangement with it.
Taught in Foundations of auditing
- Self-review
The firm audits work it performed itself, such as a valuation, a bookkeeping service or a system it designed.
Taught in Foundations of auditing
- Skills and competence
The auditor must possess the technical knowledge and practical experience needed to perform the audit competently, and keep that knowledge current.
Taught in Foundations of auditing
T
- Trading partners
Rely on it when assessing whether to continue or extend a commercial relationship.
Taught in Foundations of auditing
W
- Work performed by others
Where the auditor relies on work performed by an assistant, another auditor, an expert, or an internal auditor, they remain responsible for the audit opinion and must be satisfied that reliance is justified.
Taught in Foundations of auditing
The full glossary adds every term from the other 6 chapters, A to Z, each with the chapter that teaches it.