Chapters 2 & 3

Threats (to overall code compliance or independence)

1. Adverse interest 2. Advocacy 3. Familiarity 4. Self-interest 5. Self-review 6. Undue influence 7. Management participation (public practice)

Audtors' Report

A very precise document designed to communicate exactly the character and limitations of the responsibility being assumed by the auditors

Interpretations

Guidelines issued by the AICPA for the scope and application of the Rules of Conduct

PCAOB

Public Company Accounting Oversight Board - sets audit standards, established by SOX in 2002

Period of the professional engagement

The period for which a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for an entity, whichever is earlier. The period lasts for the entire duration of the professional relationship and ends with the formal or informal notification, either by the member or the entity, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year's attest engagement

Key Audit Matters

Those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements during the current period. These key audit matters are selected from those matters communicated with those charged with governance. The PCAOB and IAASB do not view critical audit matters and key audit matters fundamentally differently; these are slightly different terms to articulate the same underlying idea

Professional Skepticism

an attitude that includes a questioning mind and a critical assessment of audit evidence

Generally Accepted Auditing Standards (GAAS)

refers to AICPA auditing standards developed and issued in the form of Statements on Auditing Standards (SASs) and codified in AU-C sections in the Codification of Auditing Standards

Independence in appearance

the extent to which others (particularly financial statement users) perceive auditors to be independent

Rules

A group of enforceable ethical standards included in the AICPA Code of Professional Conduct

Independence

A most important audit standard which prohibits CPAs from expressing opinions unless they are independent, that is, not impaired by direct financial interest, serve as an officer/trustee, have loans to/from the enterprise, etc

Principles

AICPA Code of conduct that expresses the profession's responsibilities to the public, clients, and colleagues and provides framework for the rules

Quality Control Standards

AICPA standards for establishing quality control policies and procedures that provide reasonable assurance that all of a CPA firm's engagements are conducted in accordance with applicable professional standards

Standard Report

An audit report with (1) an unmodified (unqualified) opinion and (2) no additional matters emphasized (e.g., a change in accounting principles) beyond the information required in all audit reports. Note that while this term is frequently used in practice, the AICPA no longer formally uses it in its standards.

Covered Member

Broadly defined, any individual who might be in a position to compromise the integrity of an audit. In the AICPA Code of Professional Conduct, the term is defined as any individual, among others, who is (1) on the audit engagement team, (2) in a position to influence the audit engagement, (3) a partner or manager of a nonaudit client service team, or (4) a partner from the local office of the public accounting firm.

Inspection

Conducted by PCAOB, includes inspection/review, evaluation, and tests to ensure a public accounting firm meets PCAOB audit standards

Disclaimer of opinion

The auditor's indication that no opinion is expressed on the financial statements. The auditor will disclaim an opinion if a pervasive scope limitation arises or if it is determined that the auditor lacks independence

Audit Risk

The risk that the auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated

Independence of mind

The state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism

Impaired independence

When independence is effectively extinguished. That, is when an auditor's independence is impaired, that auditor is not independent

Safeguards

controls that mitigate or eliminate threats to independence