| Adjusting journal entries (AJEs) | Journal entries designed to correct misstatements found in a client's records.
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| Administrative working papers | Working papers specifically designed to help the auditors in the planning and administration of the engagement, such as audit programs, internal control questionnaires and flowcharts, time budgets, and engagement memoranda.
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| Analysis | A working paper showing all changes in an asset, liability, equity, revenue, or expense account during the period covered by the audit.
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| Audit evidence | Any information that corroborates or refutes the auditors' premise that the financial statements present fairly the client's financial position and operating results.
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| Audit file | The unit of storage for a specific audit engagement. The audit documentation for each year's audit of a company is included in its audit file.
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| Audit risk | The risk that the auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated.
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| Common-size financial statements | Financial statements that present each amount as a percentage of some financial statement base. As an example, a common-size income statement presents all revenues and expenses as a percentage of net sales. See vertical analysis.
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| Competent | The competence of audit evidence relates to its quality. To be competent, evidence must be both reliable (valid) and relevant.
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| Control risk | The risk that a material misstatement that could occur in an account will not be prevented or detected on a timely basis by internal control.
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| Corroborating documents | Documents and memoranda included in the working papers that substantiate representations contained in the client's financial statements. These working papers include audit confirmations, lawyers' letters, copies of contracts, copies of minutes of directors' and stockholders' meetings, and representation letters from the client's management.
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| Cross-sectional analysis | A technique that involves comparing the client's ratios for the current year with those of similar firms in the same industry.
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| Cutoff | The process of determining that transactions occurring near the balance sheet date are assigned to the proper accounting period.
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| Detection risk | The risk that the auditors' procedures will lead them to conclude that a financial statement assertion is not materially misstated when in fact such misstatement does exist.
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| Documentation completion date | The date on which documentation should be completed. This is within 60 days of the delivery date.
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| Electronic data interchange (EDI) | A system in which data are exchanged electronically between the computers of different companies. In an EDI system source documents are replaced with electronic transactions created in a standard format.
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| Estimation transaction | A transaction involving management's judgments or assumptions, such as determining the allowance for doubtful accounts, establishing warranty reserves, and assessing assets for impairment.
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| Experienced auditor | For purposes of audit documentation, an individual (whether internal or external to the CPA firm) who possesses the competencies and skills enabling him or her to perform an audit and who has a reasonable understanding of the audit processes and of auditing and financial reporting issues relevant to the industry in which the client operates.
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| Horizontal analysis | A technique that involves comparing financial statement amounts and ratios for a particular company from year to year.
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| Inherent risk | The risk of material misstatement of a financial statement assertion, assuming there were no related controls.
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| Lead schedule | A working paper with columnar headings similar to those in a working trial balance, set up to combine similar ledger accounts the total of which appears in the working trial balance as a single amount.
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| Material | Of substantial importance. Significant enough to affect evaluations or decisions by users of financial statements. Information that should be disclosed in order that financial statements constitute a fair presentation. Involves both qualitative and quantitative considerations.
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| Minutes | A formal record of the issues discussed and actions taken in meetings of stockholders or the board of directors.
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| Nonroutine transaction | A transaction that occurs only periodically, such as counting and pricing inventory, calculating depreciation expense, or determining prepaid expenses.
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| Permanent file | A file of working papers containing relatively unchanging data, such as copies of articles of incorporation and bylaws; copies of minutes of directors', stockholders', and committee meetings; and analyses of such ledger accounts as land and retained earnings.
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| Physical evidence | Evidence derived by the auditors from physical examination.
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| Reclassification journal entry (RJE) | Aworking paper entry drafted by the auditors to assure fair presentation of the client's financial statements, such as an entry to transfer accounts receivable credit balances to the current liabilities section of the client's balance sheet. Since reclassification entries do not correct misstatements in the client company's accounting records, they are not posted to the client's ledger accounts.
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| Related party transaction | A transaction in which one party has the ability to influence significantly the management or operating policies of the other party, to the extent that one of the transacting parties might be prevented from pursuing fully its own separate interests.
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| Report date (audit report date) | The date on which the auditor has obtained sufficient competent audit evidence to support the opinion on the financial statements or other financial information being reported upon. The audit report is ordinarily dated as of this date.
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| Representation letter | A single letter or separate letters prepared by officers of the client company at the auditors' request setting forth certain representations about the company's financial position or operations.
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| Routine transaction | A transaction for a recurring financial activity recorded in the accounting records in the normal course of business, such as sales, purchases, cash receipts, cash disbursements, and payroll.
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| Specialist | A person or firm possessing special skill or knowledge in a field other than accounting or auditing, such as an actuary.
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| Substantive tests | Tests of account balances and transactions designed to detect any material misstatements in the financial statements. Substantive tests directly affect detection risk.
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| Sufficient | Sufficient audit evidence is a measure of the quantity of the evidence required.
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| Tick mark | A symbol used in working papers by the auditor to indicate a specific step in the work performed. Whenever tick marks are used, they must be accompanied by a legend explaining their meaning.
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| Vertical analysis | A form of analysis that presents financial statement amounts for a period as a percentage of some financial statement base. This analysis involves the preparation of common-size financialstatements.
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| Working papers | Papers that document the evidence gathered by auditors to show the work they have done, the methods and procedures they have followed, and the conclusions they have developed in an audit of financial statements or other type of engagement.
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| Working trial balance | A working paper that lists the balances of accounts in the general ledger for the current and the previous year and also provides columns for the auditors' adjustments and reclassifications and for the final amounts that will appear in the financial statements.
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