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Audit evidence: Facts gathered during the audit procedures that provide a reasonable basis for forming an opinion regarding the financial statements under audit.
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Audit risk: The risk of forming an inappropriate opinion on the financial statements under audit.
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Control risk: The risk that a company’s internal controls won’t detect or prevent mistakes.
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Due professional care: Taking the time to gather reasonable audit evidence to support the fact that the financial statements are free of material misstatement.
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Generally accepted accounting principles (GAAP): Standard U.S. accounting guidelines for reporting financial statement transactions.
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Generally accepted auditing standards (GAAS): Standard U.S. auditing guidelines for planning, conducting, and reporting on audits.
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Going concern: The expectation that a business will remain operating for at least another 12 months.
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Independence: Having an arm’s-length relationship — meaning no special or close relationship — with the client under audit.
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Inherent risk: The likelihood of arriving at an inaccurate audit conclusion based on the nature of the client’s business.
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Internal controls: The operating standards a client uses to prevent or uncover mistakes.
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Management assertions: Representations the managers of a company make on the financial statements.
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Materiality: The importance placed on an area of financial reporting based on its overall significance.
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Objectivity: The ability to evaluate client records with no preconceived notions or prejudices.
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Professional skepticism: Approaching an audit with a questioning mind-set.
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Sampling: Selecting a small but pertinent and representative number of records to represent the entire population of records.
Important Auditing Vocabulary and Key Terms
Every profession has its own lexicon. To communicate with your audit peers and supervisors, you must know key auditing phrases. Knowing these buzzwords is also helpful if you’re a business owner, because auditors sometimes forget to switch from audit-geek talk to regular language when speaking with you.
