Auditing and Assurance glossary

An examination of whether an entity has complied with specific laws, regulations, rules or contractual terms.

Taught in Nature and purpose of an audit

The audit is conducted in accordance with International Standards on Auditing (or an equivalent national framework) applied consistently, so that the opinion means the same thing wherever it is issued.

Taught in Nature and purpose of an audit

Audit work performed at frequent, sometimes ongoing, intervals throughout the year, typically for a large entity with high transaction volumes or where controls need continuous monitoring.

Taught in Nature and purpose of an audit

Every conclusion is supported by sufficient appropriate audit evidence (see the chapter on audit evidence), not by the auditor's impression or the client's assurances alone.

Taught in Nature and purpose of an audit

An audit performed by an auditor independent of the entity, expressing an opinion to an external addressee, typically the members; this paper is principally about the external audit.

Taught in Nature and purpose of an audit

Audit work performed after the year end, concentrating on the closing balances and the financial statements as a whole.

Taught in Nature and purpose of an audit

Fraud, particularly management override of controls involving collusion, falsified documentation or deliberate misrepresentation to the auditor, is inherently harder to detect than unintentional error, even with the professional scepticism ISA 240 requires (see the chapter on errors, fraud and irregularities).

Taught in Nature and purpose of an audit

The auditor's opinion is worth having only because it is independent of the people who prepared the statements; independence, in fact and in appearance, is the feature that separates an audit from a self-review.

Taught in Nature and purpose of an audit

Audit work performed at one or more points during the financial year, before the year end, to spread the workload and identify issues early, distinguished from the final audit that follows the year end (see the chapter on audit planning).

Taught in Nature and purpose of an audit

An in-house or outsourced function that evaluates and improves the effectiveness of governance, risk management and control, reporting to management and the audit committee rather than expressing an opinion to external users (see the chapter on the internal audit function).

Taught in Nature and purpose of an audit

An examination of an entity's operations and management practices for economy, efficiency and effectiveness, rather than an opinion on financial statements.

Taught in Nature and purpose of an audit

An audit not required by any law, undertaken because the owners, partners or trustees of an entity, a sole trader, a partnership or a private trust, want the assurance for their own purposes.

Taught in Nature and purpose of an audit

The auditor maintains a questioning mind throughout, alert to conditions that may indicate misstatement, and exercises judgement in applying the standards to the specific circumstances of the engagement.

Taught in Nature and purpose of an audit

An audit provides reasonable assurance, a high but not absolute level of assurance, that the statements are free from material misstatement, whether caused by fraud or error; the inherent limitations set out below are why absolute assurance is never attainable.

Taught in Nature and purpose of an audit

The audit ends in a written report addressed to the people entitled to receive it (typically the members, for a statutory audit), not a general publication to the world at large.

Taught in Nature and purpose of an audit

The auditor tests a sample rather than every transaction (see the chapter on audit evidence), so there is always some risk that a misstatement in the untested population goes undetected.

Taught in Nature and purpose of an audit

An audit conducted for a specific, narrow purpose outside the annual statutory cycle: an investigation audit, a due-diligence review for an acquisition, or an audit for a specific contractual requirement.

Taught in Nature and purpose of an audit

An audit required by law, most commonly under the Companies Act, 2015 for a company that does not qualify for the small-companies or other exemption; the auditor is appointed and reports under a specific statutory framework.

Taught in Nature and purpose of an audit

An audit follows a structured sequence: engagement acceptance, planning and risk assessment, evidence gathering, evaluation and reporting, not an unstructured inspection.

Taught in Nature and purpose of an audit

Some management representations and much information exist only within the entity, and there are practical and legal limits on the auditor's ability to obtain evidence, for example privileged legal advice; collusion, forgery and deliberate concealment can also defeat even well-designed procedures.

Taught in Nature and purpose of an audit

Many items in the financial statements involve subjective judgement, estimation and a range of acceptable interpretation, so there is rarely one single correct figure the auditor can verify against.

Taught in Nature and purpose of an audit

Financial reporting and users' decisions have a natural time frame, so the audit must be completed in a reasonable period and at a reasonable cost, which limits how exhaustively every balance can be tested; a hundred per cent verification of every transaction is neither practical nor, given the cost, what users actually want.

Taught in Nature and purpose of an audit

The opinion states whether the statements give a true and fair view (or, under some frameworks, present fairly, in all material respects) of the entity's financial position and performance, a standard higher than mere arithmetical accuracy and lower than absolute certainty.

Taught in Nature and purpose of an audit