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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.
