Question
What are the Auditing Jargon that can be used to answer a case study and their examples.
Answers
GPT 3.5
1. Materiality - the concept that certain misstatements or omissions in financial statements could influence the decisions of users of those statements.
Example: The auditor determined that a $10,000 misstatement in inventory was material because it could impact the company's overall financial position.
2. Scope limitation - when the auditor is unable to obtain sufficient appropriate evidence to support their opinion due to restrictions in the audit process.
Example: The auditor was unable to physically observe the company's inventory count due to COVID-19 restrictions, resulting in a scope limitation.
3. Qualified opinion - when the auditor believes that there are material misstatements in the financial statements but they are not pervasive enough to warrant an adverse opinion.
Example: The auditor issued a qualified opinion on the financial statements due to a lack of documentation supporting the valuation of certain assets.
4. Risk assessment - the process of identifying and assessing the risks of material misstatement in the financial statements.
Example: The auditor performed a risk assessment and concluded that there was a high risk of fraud in the revenue recognition process.
5. Management representation letter - a letter provided by management to the auditor confirming their responsibility for the financial statements and disclosing any relevant information.
Example: Management provided a representation letter to the auditor stating that all information provided to them was true and accurate.
6. PCAOB - Public Company Accounting Oversight Board, a regulatory body that oversees the audits of public companies.
Example: The auditor's work was subject to inspection by the PCAOB to ensure compliance with auditing standards.
7. Going concern - the assumption that a company will continue its operations for the foreseeable future.
Example: The auditor had concerns about the company's ability to continue as a going concern due to significant losses in recent years.
Example: The auditor determined that a $10,000 misstatement in inventory was material because it could impact the company's overall financial position.
2. Scope limitation - when the auditor is unable to obtain sufficient appropriate evidence to support their opinion due to restrictions in the audit process.
Example: The auditor was unable to physically observe the company's inventory count due to COVID-19 restrictions, resulting in a scope limitation.
3. Qualified opinion - when the auditor believes that there are material misstatements in the financial statements but they are not pervasive enough to warrant an adverse opinion.
Example: The auditor issued a qualified opinion on the financial statements due to a lack of documentation supporting the valuation of certain assets.
4. Risk assessment - the process of identifying and assessing the risks of material misstatement in the financial statements.
Example: The auditor performed a risk assessment and concluded that there was a high risk of fraud in the revenue recognition process.
5. Management representation letter - a letter provided by management to the auditor confirming their responsibility for the financial statements and disclosing any relevant information.
Example: Management provided a representation letter to the auditor stating that all information provided to them was true and accurate.
6. PCAOB - Public Company Accounting Oversight Board, a regulatory body that oversees the audits of public companies.
Example: The auditor's work was subject to inspection by the PCAOB to ensure compliance with auditing standards.
7. Going concern - the assumption that a company will continue its operations for the foreseeable future.
Example: The auditor had concerns about the company's ability to continue as a going concern due to significant losses in recent years.