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Chapter 16

This document defines key terms related to auditing, including: - Assurance activity which improves information quality and compliance. - Consulting activity which adds value through agreed upon services like advice and training. - A dual approach uses both the iron curtain and rollover methods to determine materiality of misstatements. - Goodwill is the excess purchase price over fair value of assets and liabilities acquired.

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242 views

Chapter 16

This document defines key terms related to auditing, including: - Assurance activity which improves information quality and compliance. - Consulting activity which adds value through agreed upon services like advice and training. - A dual approach uses both the iron curtain and rollover methods to determine materiality of misstatements. - Goodwill is the excess purchase price over fair value of assets and liabilities acquired.

Uploaded by

hanna sanchez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 16 Advanced Topics Concerning Complex Auditing Judgments

33
Assurance activity
Objective professional services that improve the quality of information
about processes; effectiveness of controls; reliability of information; or
compliance with company, regulatory, or governmental procedures;
and the effectiveness and efficiency with which the organization carries
out its operations.
Consulting activity
Advisory or partnering activity that adds value and improve an
organizations operations, in which the nature and scope of services
are agreed upon with the client. Examples include counsel, advice,
facilitation, process design, and training.
Dual approach
A method of misstatement correction that requires use of both the iron
curtain and rollover methods to determine whether a misstatement is
material.
Fair value estimate
The price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.
Financial instruments
A broad class of instrumentsusually debt securities, but also equity
or hedgesthat represents financial agreements between a party
(usually an issuer) and a counterparty (usually an investor) based on
either underlying assets or agreements to incur financial obligations or
make payments; instruments range in complexity from a simple bond
to complicated agreements containing puts or options.
Goodwill
The excess of the purchase price over the FMV of the acquired
companys tangible assets, identifiable intangible assets, and liabilities.
Goodwill impairment
The decrease in the value of goodwill. Measured by comparing the fair
value of the reporting entity with the carrying value of entity. If fair
value is less than carrying value (including goodwill), the presumption
is that goodwill has been impaired. Goodwill should be written down to
an amount that would cause fair value to be no more than carrying
value.
Impairment
This occurs when events or changed circumstances cause the
estimated future cash flows (future benefits) of an asset to fall below
the assets book value.
Iron curtain method

CHAPTER 16 Advanced Topics Concerning Complex Auditing Judgments


34
A method of misstatement correction that focuses on assuring that the
year-end balance sheet is correct; this method does not consider the
impact of prior-year uncorrected misstatements reversing in later
years.

Internal audit charter


A formal, written document that defines the purpose, authority, and
responsibilities of the internal audit function within the organization.
Operating segment
A component of an organization that is a profit center, that has
discrete financial information, and whose results are reviewed regularly
for purposes of performance assessment and resource allocation.
Other postemployment benefits
All postretirement benefits, other than pensions. Must be identified and
measured by the company. The accounting treatment is conceptually
the same as pensions.
Reporting unit
For accounting purposes, it is the acquired segment or operating
segment to
which the goodwill from the acquisition is assigned.
Tests for goodwill impairment
Are performed at the reporting unit level.
Rollover method
A method of misstatement correction that focuses on the materiality of
the current-year misstatements and the reversing effect of prior-year
misstatements on the income statement, thereby allowing
misstatements to accumulate on the balance sheet.
Summary of unadjusted audit differences
A summary of uncorrected errors that is communicated to the audit
committee, is described in the management representation letter, and
that is evaluated individually and in the aggregate for determining
whether the financial statements are materially correct.

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