Audit & IFRS Glossary

A framework expressing audit risk as a function of inherent risk, control risk, and detection risk (AR = IR x CR x DR), used to plan the nature, timing, and extent of audit procedures.

The application of audit procedures to less than 100% of items within a population, where all sampling units have a chance of being selected, so the auditor can draw conclusions about the entire population.

A management representation issued by a service organization covering the period between the end of its ISAE 3402 report and the user entity's financial year-end.

Controls that a service organization assumed user entities would implement in the design of its system. Must be tested independently by the user auditor.

A forward-looking impairment model under IFRS 9 that requires entities to recognise credit losses based on expected (not incurred) defaults.

Events or conditions that indicate an incentive or pressure to commit fraud, provide an opportunity, or indicate a rationalisation that justifies committing fraud.

A framework describing the three conditions typically present when fraud occurs: incentive/pressure, opportunity, and rationalisation.

The assumption that an entity will continue in operation for the foreseeable future, typically at least twelve months from the reporting date.

The standard governing assurance reports on controls at a service organization relevant to user entities' financial reporting. The international equivalent of SOC 1.

The ability of management to manipulate accounting records by circumventing controls that otherwise appear to be operating effectively. A presumed risk on every audit.

The threshold above which misstatements (individually or in aggregate) could reasonably influence users' economic decisions based on the financial statements.

The amount set by the auditor below overall materiality to reduce the probability that uncorrected and undetected misstatements in aggregate exceed overall materiality.

The monetary amount set by the auditor for a specific sampling application, representing the maximum misstatement in the population the auditor will accept. Performance materiality applied to a specific account.