ACCT 461 Final Exam

Adverse Opinion

an opinion that the financial statements do not fairly present in conformity with GAAP

Debenture Bond

an unsecured bond, dependent upon the general credit of the issuer

Likely Misstatements

misstatements identified by the auditors during the audit that are due to either extrapolate from evidence or differences in accounting estimates

Vendor's Statement

monthly statements prepared by the vendor showing the beginning balance, changes during the month for goods or services, amounts collected, and ending balance

Example of a Dual-Purpose Procedure

observing the physical inventory process and making test counts

Unmodified Opinion

opinion expressed by the auditors when they conclude that the financial statements are prepared in accordance with GAAP

Examples of Low Turnover Accounts

property, plant and equipment, intangible assets, long-term liabilities and owner's equity accounts

Treasury Stock

shares of its own stock acquired by a corporation for the purpose of being reissued at a later date

Accrued Liabilities

short-term obligations for services of a continuing nature that accumulate over time

Known Misstatements

specific misstatements identified by the auditors during the course of the audit

Plant, Property and Equipment

tangible assets with service life more than one year (long-term), used in operation of the business, not acquired for the purpose of resale

Observation

the auditor's evidence-gathering technique of viewing a client activity to obtain physical evidence

Rollforward

the summary analysis that auditors obtain or prepare that emphasizes changes during the year under audit

Pledging of Receivables

to assign a bank, factor, finance company, or other lender an exclusive claim against accounts receivable as a security for a debt

Bill and Hold Transactions

transactions in which sales of merchandise are billed to customers prior to delivery, with the goods being held by the seller

Disclaimer of Opinion

a form of report in which the auditors state they do not express an opinion on the financials statements

Aged Trial Balance

a listing of individual customer's accounts classified by the number of days subsequent to billing

Perpetual Inventory System

a method of accounting for inventories in which controlling accounts and sub ledgers are maintained to record receipts and issuances of goods

Periodic Inventory System

a method of accounting in which inventories are determined solely by means of a physical inventory at the end of the accounting period

Qualified Opinion

a modification of the auditors standard report, employing a clause such as except for to limit auditors opinion on financial statements

Contingent Liability

a possible liability, stemming from past events, that will be resolved as to existence and amount by some future event

Loss Contingency

a possible loss, stemming from past events that should be disclosed in notes to financial statements if there is a reasonable possibility that the loss a loss has been incurred

Lockbox

a post office box controlled by a company's bank at which cash remittances from customers are received

Modified Opinion

a qualified opinion, an adverse opinion, or a disclaimer of opinion

Positive Confirmation Request

a request that the confirming party respond directly to the auditor providing the requested information or indicating whether the confirming party agrees or disagrees with the information in the request

Negative Confirmation Request

a request that the confirming party respond directly to the auditors indicating where the confirming party disagrees with the information in the request

Scope Limitation

a restriction that prevents the auditors form being able to apply all of the audit procedures that they consider necessary in the circumstances

Work Order

a serially numbered accounting document authorizing the acquisition of plant assets

Representation Letter

a single letter or separate letters prepared by the officers of the client company at the auditors request setting forth certain responsibilities about the company's financial position or operations

Bank Confirmations

a substantive procedure that an auditor must perform during the audit of cash

Consignment

a transfer of goods from the owner to another person who acts as the sales agent of the owner

Conservatism

an accounting doctrine for asset valuation in which the lower of two alternative acceptable asset valuations is chosen

Bank Transfer Schedule

an audit procedure that is used to identify kiting

Proof of Cash

an audit procedure that reconciles the bank's record of cash activity with the client's accounting records for a test period

Standard Report

an audit report with an unmodified (unqualified) opinion and no additional matters emphasized

General Risk Contingency

an element of the business environment that involves some risk of a future loss

Revenue Expenditure

an expense for plan, property and equipment that is properly charged to an expense account

Capital Expenditure

an expense for plant, property and equipment that is properly charged to an asset account

Dual-Purpose Procedure

audit procedure that serves as a test of controls and a substantive test of details of the transactions that occurred during the year

Sinking Fund

cash or other assets set aside for the retirement of a debt

Derivatives

financial instruments that "derive" their value from other financial instruments, underlying assets, or indexes

Trust Indenture

formal agreement between bondholders and the issuer as to the terms of the debt

Kiting

manipulations causing an amount of cash to be included simultaneously in the balance of two or more bank accounts