Audit & IFRS Glossary

12-month expected credit loss is the portion of lifetime expected credit losses that represents the cash flow shortfalls from default events possible within twelve months of the reporting date,...

An Accountant-Administratieconsulent (AA) is a legally protected Dutch professional title under the Wet op het accountantsberoep (Wab) for accountants who completed HBO-level education and...

An absolute emissions target commits an entity to reducing its total greenhouse gas output by a fixed amount (in tonnes of CO₂e), while an intensity target ties the reduction to a ratio of...

Acceptance and continuance is the process by which an audit firm evaluates whether to take on a new client relationship or engagement, or to continue an existing one, based on ethical...

The group engagement team's right and procedures to review a component auditor's audit documentation under ISA 600 (Revised), essential for evaluating whether component work is sufficient for group audit purposes.

IAS 8 governs how an entity selects and applies accounting policies, accounts for voluntary and mandatory policy changes, revises accounting estimates prospectively, and corrects prior-period...

An accounting policy disclosure is the note in which an entity describes the material accounting policies it applied when preparing its financial statements, enabling users to understand the...

Accounts payable is the balance sheet liability representing amounts an entity owes to suppliers for goods received or services performed but not yet paid, recognised under the accrual accounting...

Accounts receivable are amounts owed to an entity by customers for goods delivered or services performed on credit, recognised when the entity satisfies a performance obligation under IFRS 15 and...

Accrual accounting is the basis of preparation under IAS 1 that requires an entity to recognise transactions and events when they occur (not when cash is received or paid), so that financial...

Accrued expenses are liabilities for goods or services an entity has received but not yet been invoiced for at the reporting date, recognised under the accrual basis in IAS 1 to match costs to the...

Accrued revenue is income that an entity has earned by delivering goods or satisfying a performance obligation but has not yet invoiced or received payment for, recognised as a contract asset or...

The assertion that amounts and other data relating to recorded transactions and events have been recorded appropriately, and that financial information in disclosures is measured and described correctly.

An adjusting entry is a journal entry recorded at or after period-end to update account balances for accruals, deferrals, estimates, and reclassifications so that the financial statements reflect...

Events after the reporting period that provide evidence of conditions which existed at the end of the reporting period. IAS 10 requires the entity to adjust the amounts recognised in the financial statements to reflect these events.

The most severe form of modified audit opinion, issued when the auditor concludes that misstatements in the financial statements are both material and pervasive. It means the financial statements as a whole do not give a true and fair view.

The Autoriteit Financiële Markten (AFM) is the Dutch financial markets regulator responsible for supervising audit firms that perform statutory audits of public-interest entities (PIEs) in the...

The Autoriteit Financiele Markten (AFM) is the Dutch financial markets authority that supervises audit firms performing statutory audits in the Netherlands, operating under the Wet toezicht...

An AFM inspection is a periodic review by the Autoriteit Financiele Markten of whether an audit firm's quality management system and individual statutory audit engagements comply with the Wet...

The risk that the aggregate of individually immaterial misstatements across components could be material to the group financial statements as a whole. A key consideration in setting component materiality.

An engagement in which a practitioner carries out specific procedures agreed with the engaging party and reports factual findings without expressing a conclusion or opinion. Governed by ISRS 4400 (Revised).

The AI Act (Regulation 2024/1689) is the European Union's risk-based law governing artificial intelligence systems, imposing obligations that range from outright prohibition of certain AI...

The audit steps an auditor performs when an external confirmation request produces no response or cannot be sent, designed to obtain the same evidence about a financial statement assertion through other means under ISA 505.

The Altman Z-score is a credit-strength formula that combines five weighted financial ratios into a single discriminant score predicting the probability of corporate bankruptcy within two years,...

Amortised cost is the measurement basis under IFRS 9 where a financial asset or liability is recorded at its initial amount, adjusted for principal repayments, cumulative amortisation of any...

Audit techniques that evaluate financial information by analysing plausible relationships between financial and non-financial data, used at three stages of the audit: risk assessment, substantive testing, and the overall review near completion.

Automated or IT-dependent procedures built into specific software applications that process transactions, validate data, maintain integrity, and enforce business rules at the transaction level.

The arm's length principle requires that transactions between related parties be priced as if the parties were independent, so that the taxable profit reported in each jurisdiction reflects the...

A transaction conducted between parties on terms and conditions that independent, unrelated parties would agree to in comparable circumstances, used as the benchmark for evaluating related party transaction pricing under IAS 24 and ISA 550.

The asset turnover ratio measures how efficiently an entity converts its total asset base into revenue, calculated by dividing revenue by average total assets reported under IAS 1, and applied by...

An associate is an entity over which an investor has significant influence but not control or joint control, accounted for using the equity method in the investor's consolidated financial...

An engagement in which a practitioner obtains sufficient appropriate evidence to express a conclusion designed to increase confidence of intended users about the subject matter information. Covers both audit and review engagements under ISAE 3000.

A sampling method used to test the rate of deviation from a prescribed control procedure in a population, where each item is classified as either a deviation or not a deviation.

The representations by management, whether explicit or implicit, that are embodied in the financial statements and that the auditor uses to frame the types of potential misstatements to test.

A sub-committee of the board responsible for overseeing the entity's financial reporting process, external audit, internal control system, and regulatory compliance. ISA 260 (Revised) governs auditor communications with this body.

The record of audit procedures performed, evidence obtained, significant judgments made, and conclusions reached on an engagement. It serves as the primary evidence that the audit was conducted in accordance with ISAs.

The written agreement between the auditor and management recording the agreed terms of the audit engagement, including responsibilities of both parties and the scope of the work. Required by ISA 210.10.

All information the auditor uses to reach the conclusions on which the audit opinion is based, including the information contained in the accounting records and other information obtained during the engagement.

The detailed document that converts the overall audit strategy into specific procedures for each area of the financial statements, describing what to test, when, how extensively, and by whom on the engagement team.

The process of establishing the overall audit strategy and developing a detailed audit plan, designed to reduce audit risk to an acceptably low level. A continuous activity updated as the audit progresses under ISA 300.

The narrative document recording the engagement team's understanding of the client, key planning judgments, the rationale behind the audit approach, and materiality decisions. Required by ISA 230.8 and ISA 300.12.

Audit quality indicators (AQIs) are quantitative and qualitative measures that provide information about factors relevant to audit quality at the engagement, firm, or national level.

The risk that the auditor expresses an inappropriate opinion when the financial statements contain a material misstatement. Expressed as the product of risk of material misstatement and detection risk.

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.

The high-level document setting scope, timing, direction, and resourcing of an audit engagement, guiding development of the detailed audit plan. The first formal output of the planning process under ISA 300.7.

An individual or organisation with expertise in a field other than accounting or auditing, whose work is used by the auditor to obtain sufficient appropriate audit evidence. The auditor engages the expert directly under ISA 620.

The formal written document in which the auditor expresses an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. Governed by ISA 700.

Bad debt expense is the charge to profit or loss that reflects the estimated amount of trade receivables a business expects not to collect, measured under IFRS 9 using an expected credit loss...

The BaFin is the German federal financial supervisory authority responsible for overseeing banks, insurers, securities trading, and (together with the APAS) certain aspects of audit firm...

A bank reconciliation is the process of matching an entity's cash book balance to the bank statement balance at a reporting date, identifying and explaining all differences so that the cash figure...

Basic EPS divides profit attributable to ordinary shareholders by the weighted average shares actually outstanding, while diluted EPS adjusts both the numerator and denominator to reflect the...

Base erosion and profit shifting (BEPS) refers to tax-planning strategies that exploit gaps between domestic tax rules to artificially shift profits to low-tax jurisdictions, addressed by the...

The best estimate of expenditure is the amount an entity would rationally pay to settle a present obligation or to transfer it to a third party at the reporting date, serving as the measurement...

A Bestätigungsvermerk is the statutory auditor’s opinion on financial statements issued under HGB §322, formatted according to ISA [DE] 700 as transposed by the IDW, stating whether...

A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but retains physical possession of that product until a future transfer date, with revenue recognised...

Blockchain audit considerations are the evidence-gathering challenges and risk assessment factors an auditor evaluates when an entity records transactions on or derives financial statement amounts...

Borrowing costs are interest and other costs an entity incurs in connection with borrowing funds, capitalised as part of the cost of a qualifying asset when they are directly attributable to that...

A management representation issued by a service organization covering the period between the end of its ISAE 3402 or SOC 1 report and the user entity's financial year-end, confirming no material changes to the control environment.

A business combination is a transaction or event in which an acquirer obtains control of one or more businesses, accounted for by applying the acquisition method under IFRS 3, which requires...

BW2 Title 9 (Boek 2, Titel 9 Burgerlijk Wetboek) is the section of the Dutch Civil Code that requires legal entities to prepare annual accounts consisting of a balance sheet, a profit and loss...

A carbon footprint is the total quantity of greenhouse gas emissions (expressed in tonnes of CO2 equivalent) caused directly and indirectly by an organisation, product, or activity, measured under...

Cash basis accounting is a method that records revenue when cash is received and expenses when cash is paid, rather than when the underlying transaction occurs, and is prohibited for...

The cash conversion cycle (CCC) measures the number of days between an entity paying for inventory and collecting cash from the resulting sale, combining inventory days, receivable days, payable...

A cash flow hedge is a designation under IFRS 9 that defers gains and losses on a hedging instrument in other comprehensive income until the hedged forecast transaction or firm commitment affects...

A cash-generating unit is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets, used as the basis for...

CDP is a not-for-profit organisation that runs the world's largest environmental disclosure platform, collecting climate, water, forest, biodiversity, and plastics data from over 23,000...

A chart of accounts is the complete, coded list of all general ledger accounts an entity uses to classify and record its transactions, structured to map directly into the line items required by...

The assertion that transactions, events, account balances, and disclosures have been recorded in the proper accounts and presented in a way that is understandable to users.

The amount below which identified misstatements need not be accumulated because they are of a wholly different (smaller) order of magnitude than materiality and could not be material individually or in aggregate.

A climate transition plan is a time-bound action plan disclosed under ESRS E1 that explains how an entity will adjust its strategy and business model to align with the Paris Agreement goal of...

A closing entry is a journal entry recorded at the end of an accounting period that transfers the balances of temporary accounts (revenue, expenses, gains, losses) to retained earnings under IAS...

Cloud computing audit risks are the risks of material misstatement that arise when an audited entity relies on cloud-hosted platforms or software for processes relevant to financial reporting,...

The comparable uncontrolled price (CUP) method tests whether the price charged in a controlled transaction between related parties matches the price charged in a comparable uncontrolled...

Financial statements presenting an entity's data for the current period alongside at least one prior period, enabling users to identify trends and anomalies across reporting dates. Required by IAS 1.38 and governed by ISA 710.

Prior period amounts and disclosures included in the current period financial statements for comparison. ISA 710 distinguishes corresponding figures from comparative financial statements.

An engagement in which a practitioner applies accounting expertise to assist management in preparing financial information without obtaining or providing any assurance. Governed by ISRS 4410 (Revised).

Three levels of service: compilation provides no assurance, review provides limited assurance through inquiry and analytics, and audit provides reasonable assurance through extensive procedures.

Management's implicit claim that all transactions, account balances, events, and disclosures that should have been recorded in the financial statements have been included.

A distinct business unit, subsidiary, division, or other entity whose financial information is included in the group financial statements and on which audit work is performed for the group audit.

An auditor who performs work on the financial information of a component at the request of the group engagement team for the group audit. Under ISA 600 (Revised), their role is determined by risk-based scoping rather than binary significant/non-significant classification.

Component depreciation is the requirement under IAS 16 to depreciate each significant part of a property, plant, and equipment item separately when those parts have materially different useful...

The materiality level allocated by the group engagement team to a component for the purpose of planning and performing audit work on that component's financial information. Must be lower than group materiality.

The probability that the sample result will correctly reflect the true state of the population, expressed as a percentage and derived from the auditor's assessment of the risk of material misstatement under ISA 530.

A consignment arrangement is a delivery of goods to another party (the dealer or consignee) where the entity retains control of those goods until a specified event occurs, typically a sale to an...

Consolidation adjustments are the journal entries that eliminate intercompany balances, intercompany transactions, unrealised profits, and the parent's investment in each subsidiary so that the...

The constraint on variable consideration is an IFRS 15 requirement that limits the amount of variable consideration included in the transaction price to the amount for which it is highly probable...

A constructive obligation is an obligation that derives from an entity's actions where, by an established pattern of past practice, published policies, or a sufficiently specific current...

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not...

A contingent liability is either a possible obligation arising from past events whose existence will be confirmed only by uncertain future events, or a present obligation that is not recognised...

Continuous auditing is an approach in which the auditor performs audit procedures on an ongoing or near-real-time basis throughout the financial year rather than concentrating testing in a single...

Continuous monitoring is the ongoing evaluation of a firm's system of quality management under ISQM 1 to detect deficiencies in real time, rather than relying solely on periodic inspection, so...

A contract asset is an entity's right to consideration in exchange for goods or services that it has transferred to a customer, where that right is conditional on something other than the passage...

A contract liability is an obligation to transfer goods or services to a customer for which the entity has already received consideration (or the amount is due), recognised as a liability under...

A contract modification under IFRS 15 is a change to the scope or price (or both) of an existing contract with a customer that both parties have approved, requiring the entity to determine whether...

Control exists when an investor has power over an investee, exposure or rights to variable returns from its involvement, and the ability to use that power to affect those returns, requiring...

The set of standards, processes, and structures providing the foundation for internal control across the entity, reflecting management's attitudes and actions regarding internal control. Required evaluation under ISA 315.21(a).

The risk that a misstatement in an assertion will not be prevented or detected and corrected on a timely basis by the entity's internal controls. Assessed at maximum unless controls are tested.

A controleverklaring is the statutory auditor's report issued under Standaard 700 of the Dutch NV COS framework, stating the audit opinion on financial statements prepared under BW2 Title 9 or...

Prior period amounts and disclosures presented as an integral part of the current period financial statements, intended only for comparison. The auditor's opinion covers only the current period under this approach.

COS (Controlestandaarden) are the Dutch auditing standards issued by the NBA as part of the NV COS (Nadere Voorschriften Controle- en Overige Standaarden), translating and supplementing the...

The cost approach is one of three valuation techniques under IFRS 13 that estimates fair value by calculating the amount currently required to replace the service capacity of an asset, often...

The cost model is one of two measurement bases an entity may elect for property, plant and equipment after initial recognition, carrying the asset at cost less accumulated depreciation and...

The cost model carries property, plant and equipment at historical cost less accumulated depreciation and impairment losses, while the revaluation model remeasures assets to fair value at the...

Country-by-country reporting is the OECD BEPS Action 13 requirement for multinational groups with consolidated revenue above €750 million to file an annual report disclosing revenue, profit before...

A credit-impaired financial asset is a financial asset whose estimated future cash flows have been adversely affected by one or more loss events that have already occurred, requiring the entity to...

The benchmarks a practitioner uses to evaluate or measure subject matter in an assurance engagement, providing the reference point for assessment and conclusion. Must meet five characteristics under ISAE 3000.

The Common Reporting Standard is the OECD's global framework for automatic exchange of financial account information between tax authorities, requiring financial institutions to identify account...

Crypto asset accounting is the classification and measurement of cryptocurrency holdings under existing IFRS standards, primarily IAS 38 (intangible assets) or IAS 2 (inventories), because IFRS...

The CSRD is an EU directive (Directive 2022/2464) requiring in-scope European companies to publish sustainability information in their management report, prepared under the European Sustainability...

A CSRD audit trail is the documented chain of source data, calculation methodologies, assumptions, and sign-offs that allows an assurance provider to trace each sustainability disclosure in an...

CSRD exemptions and opt-outs are the provisions within Directive 2022/2464 (as amended by the Omnibus I directive) that allow certain EU undertakings to defer, reduce, or avoid mandatory...

The CSRD phased timeline is the staged rollout schedule under Directive 2022/2464 that determines when each category of EU undertaking must publish its first sustainability statement, as amended...

The CSRD value chain cap is a set of transitional and permanent limits on the sustainability information a reporting entity may request from, or must disclose about, upstream and downstream value...

Controls that a service organization's system description assumes user entities will implement. The user auditor must identify and test these controls independently because the service auditor's report does not cover them.

The current ratio measures an entity's short-term liquidity by dividing current assets by current liabilities as classified under IAS 1, indicating whether the entity can meet obligations falling...

Current tax is the amount of income tax payable (or recoverable) in respect of the taxable profit (or tax loss) for a period, calculated by applying enacted or substantively enacted tax rates to...

The assertion that transactions and events have been recorded in the correct accounting period, focusing on the boundary between two reporting periods.

DAC6 is the EU directive (Council Directive 2018/822) requiring intermediaries and taxpayers to report cross-border tax arrangements that meet specific hallmarks to their national tax authority...

DAC7 is the EU directive (2021/514) that requires digital platform operators to collect seller data and report it annually to the tax authority of their member state of registration, enabling...

The debt-to-equity ratio measures an entity's financial leverage by dividing total liabilities (or total debt) by total equity, providing auditors and analysts with a single metric for assessing...

Declining balance depreciation is a method of allocating the cost of a tangible asset over its useful life by applying a fixed percentage to the asset's remaining carrying amount each period,...

A decommissioning obligation is a provision recognised for the estimated cost of dismantling, removing, or restoring an asset at the end of its useful life, measured at present value and adjusted...

Deferred revenue is a liability recognised under IFRS 15 when an entity receives payment from a customer before satisfying the related performance obligation, representing the entity's obligation...

A deferred tax asset is a balance sheet amount representing future tax savings that arise when an entity has deductible temporary differences, unused tax losses, or unused tax credits that will...

A deferred tax liability is the amount of income tax payable in future periods arising from taxable temporary differences between the carrying amount of an asset or liability in the financial...

The present value of future pension payments an employer owes its employees for service already rendered, measured using actuarial assumptions that project cash outflows over decades under IAS 19.

Depreciation is the systematic allocation of the depreciable amount of a tangible asset over its useful life, reflecting the pattern in which the entity consumes the asset's future economic...

Derecognition of financial assets is the removal of a financial asset from the statement of financial position under IFRS 9, triggered when the contractual rights to cash flows expire or when the...

The risk that the procedures performed by the auditor will not detect a misstatement that exists and that could be material. The only component of audit risk the auditor directly controls.

A modified audit report in which the auditor states that no opinion can be formed on the financial statements because the auditor was unable to obtain sufficient appropriate evidence, and the possible effects are both material and pervasive.

The discount rate in lease accounting is the interest rate used to calculate the present value of future lease payments when measuring the lease liability and right-of-use asset under IFRS 16,...

DNSH is the principle under EU Taxonomy Regulation 2020/852 requiring that an economic activity claiming substantial contribution to one environmental objective must not significantly harm any of...

DORA (EU Regulation 2022/2554) is the EU regulation requiring financial entities to maintain ICT risk management frameworks, report major ICT-related incidents, test digital operational...

Double materiality is the principle under the CSRD and ESRS that requires an entity to report sustainability information that is material from both an impact perspective and a financial...

A double taxation agreement (DTA) is a bilateral treaty between two countries that allocates taxing rights over cross-border income to prevent the same income from being taxed in both the source...

Double-entry bookkeeping is the recording method in which every financial transaction produces at least two ledger entries (a debit and a credit of equal amount), ensuring the accounting equation...

A single audit procedure designed to simultaneously evaluate the operating effectiveness of a control and detect material misstatements in the underlying transactions or balances, combining a test of controls and a substantive test of details in one step.

Sustainability due diligence is the process under the EU Corporate Sustainability Due Diligence Directive (CSDDD, Directive 2024/1760) requiring in-scope companies to identify, prevent, mitigate,...

Basic earnings per share is the amount of profit or loss attributable to each ordinary share outstanding during the period, calculated by dividing the profit or loss attributable to ordinary...

Diluted earnings per share adjusts the basic EPS calculation by assuming that all dilutive potential ordinary shares (such as share options, convertible bonds, contingently issuable shares, and...

EBITDA (earnings before interest, taxes, depreciation and amortisation) is a non-GAAP measure that removes financing costs, tax and non-cash depreciation and amortisation charges to approximate...

The EBITDA margin expresses earnings before interest, tax, depreciation, and amortisation as a percentage of revenue, giving auditors and analysts a measure of operating profitability that strips...

The effective interest rate method allocates interest income or expense over the life of a financial instrument by applying a constant periodic rate to the gross carrying amount (or amortised cost...

EFRAG is a private-public body that provides technical advice to the European Commission on both IFRS endorsement and the development of the European Sustainability Reporting Standards (ESRS)...

EFRAG's financial reporting pillar assesses each new or amended IFRS standard against the EU endorsement criteria and issues technical advice to the European Commission on whether to adopt that...

An additional paragraph in the auditor's report that draws users' attention to a matter already presented or disclosed in the financial statements that the auditor considers fundamental to their understanding.

An emphasis of matter paragraph draws attention to a matter disclosed in the financial statements. An other matter paragraph communicates something not in the financial statements but relevant to users' understanding.

Engagement partner responsibilities are the obligations assigned to the individual partner who takes overall accountability for managing and achieving quality on an audit engagement, including...

An engagement quality review (EQR) is an objective evaluation of the significant judgments made by the engagement team and the conclusions reached thereon, performed by an engagement quality...

Controls operating across an organisation rather than within a specific process, including the control environment, risk assessment process, information system, and monitoring of controls. Governed by ISA 315.21–25.

The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the...

An error is an unintentional misstatement; fraud is an intentional act involving deception to obtain an unjust or illegal advantage. The distinction determines which auditing standard governs the auditor's response.

The European Sustainability Reporting Standards are the mandatory reporting framework under the CSRD that prescribes how in-scope EU undertakings disclose environmental, social, and governance...

An ESRS datapoint is the smallest discrete unit of information that a reporting entity must disclose (or assess for disclosure) within a CSRD-compliant sustainability statement, sitting one level...

A disclosure requirement is a named reporting obligation within an ESRS topical or cross-cutting standard that prescribes what an entity must report, while a datapoint is an individual item of...

An ESRS materiality threshold is the quantitative or qualitative cut-off point an entity applies under ESRS 1 to determine which sustainability-related impacts, risks, and opportunities are...

An ESRS topical standard (E1 through E5, S1 through S4, G1) prescribes disclosures for a single environmental, social, or governance subject and applies only when the entity's double materiality...

The EU Taxonomy is the classification system established by Regulation (EU) 2020/852 that defines which economic activities qualify as environmentally sustainable for the purposes of directing...

Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for...

Management's implicit claim that assets, liabilities, and equity interests recorded in the financial statements actually exist at the reporting date.

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

Expected credit loss is the probability-weighted estimate of credit losses on financial assets, measured as the difference between all contractual cash flows due and all cash flows the entity...

The auditor's estimate of the misstatement likely to exist in a population, used alongside tolerable misstatement to determine the appropriate sample size for substantive testing.

Exposure at default (EAD) is the total amount a borrower is expected to owe at the moment of default, used under IFRS 9 to calculate expected credit losses by combining EAD with the probability of...

An extension option in a lease contract gives the lessee the right to continue using the underlying asset beyond the non-cancellable period, and must be included in the lease term under IFRS 16...

Audit evidence obtained as a direct written response to the auditor from a third party, providing information about a particular balance, transaction, or other matter under ISA 505.

A misstatement about which there is no doubt: the amount recorded is objectively wrong and the correct amount can be determined with certainty. One of three ISA 450.A1 categories.

Factual misstatements are certain errors. Judgmental misstatements arise from unreasonable estimates or policies. Projected misstatements extrapolate sample errors to the population. ISA 450.A1 defines all three.

Fair value is 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, as defined by IFRS...

A fair value hedge is an IFRS 9 hedge designation that offsets changes in the fair value of a recognised asset, liability, or firm commitment attributable to a particular risk, with gains and...

A Level 1 input under IFRS 13 is a quoted price in an active market for an identical asset or liability that the entity can access at the measurement date, representing the most reliable evidence...

A Level 2 input under IFRS 13 is an observable market input other than a Level 1 quoted price, used to measure fair value when identical-asset prices in active markets are unavailable but...

A Level 3 input under IFRS 13 is an unobservable input used to measure fair value when no relevant observable market data exists, requiring the entity to develop assumptions based on the best...

Fair value less costs of disposal is the price that would be received to sell an asset in an orderly transaction between market participants, minus the incremental costs directly attributable to...

Fair value through other comprehensive income (FVOCI) is the IFRS 9 measurement category where changes in a financial asset's fair value bypass profit or loss and are recognised in OCI, applying...

Fair value through profit or loss is the IFRS 9 measurement category where a financial instrument is remeasured to fair value at every reporting date, with all gains and losses recognised...

FATCA is a US federal law (IRC Sections 1471–1474) that requires foreign financial institutions to identify and report accounts held by US persons to the IRS, with non-compliant institutions...

A finance lease from the lessor's perspective is a lease that transfers substantially all the risks and rewards of ownership of the underlying asset to the lessee, requiring the lessor to...

Under IFRS 16, a lessor classifies each lease as either a finance lease (derecognising the asset and recognising a net investment) or an operating lease (retaining the asset on balance sheet and...

A financial asset is any asset that is cash, an equity instrument of another entity, or a contractual right to receive cash or exchange financial instruments under potentially favourable...

A financial liability is a contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial instruments under conditions that are potentially...

Financial materiality in sustainability reporting identifies sustainability matters that trigger or could trigger material effects on an undertaking's cash flows, financial position, financial...

Foreign currency translation is the process of expressing in the entity's presentation currency those transactions and balances denominated in a foreign currency, governed by IAS 21.

A detailed examination of financial records conducted to detect fraud, quantify financial losses, trace the mechanism of the irregularity, or produce evidence intended for use in legal or regulatory proceedings.

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.

Fraud is an intentional act resulting in a misstatement; an error is unintentional. The distinction determines the auditor's response under ISA 240 (fraud) and ISA 450 (errors).

The Financial Reporting Council is the UK's independent regulator of auditors, accountants, actuaries, and corporate governance practices, responsible for setting auditing and ethical standards...

Free cash flow is the cash an entity generates from operations after deducting capital expenditure, derived from the statement of cash flows prepared under IAS 7, and used by auditors and analysts...

Three approaches to component work in a group audit: full-scope audit of the component, specified audit procedures on identified risks or balances, and analytical procedures at group level.

The functional currency is the currency of the primary economic environment in which an entity operates, determined under IAS 21 and used as the basis for measuring transactions and balances.

A general ledger is the principal accounting record that aggregates every financial transaction of an entity into categorised accounts, forming the basis from which the trial balance and the...

The GHG Protocol is a set of internationally recognised standards, developed by the World Resources Institute and the World Business Council for Sustainable Development, that define how...

A GmbH (Gesellschaft mit beschränkter Haftung) becomes subject to statutory audit under HGB §316 when it exceeds the 'small' size class ceilings in HGB §267.1 on two consecutive balance sheet...

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

A modified auditor's report issued when the auditor concludes that the entity cannot continue operating as a going concern, or when a material uncertainty exists but is not adequately disclosed in the financial statements.

Goodwill impairment is the write-down of goodwill recognised in a business combination when the carrying amount of the cash-generating unit to which goodwill is allocated exceeds its recoverable...

A government grant is assistance from a public body in the form of transfers of resources to an entity in return for past or future compliance with conditions relating to the entity's operating...

A green bond is a debt instrument whose proceeds are earmarked for environmentally beneficial projects, and the EU Green Bond Standard under Regulation (EU) 2023/2631 creates a voluntary label...

Greenwashing is the practice of making misleading or unsubstantiated environmental claims about a product, service, or corporate activity, now regulated under EU Directive 2024/825 (the Green...

GRI Standards are a voluntary, globally adopted sustainability reporting framework focused on an organisation's outward impacts on people and the environment, while ESRS are legally mandatory EU...

Gross profit margin is the percentage of revenue remaining after deducting cost of sales, calculated by dividing gross profit by revenue as presented under IAS 1, and used in analytical procedures...

An audit of group financial statements that involves components, requiring the group engagement team to direct, supervise, and review work performed by component auditors under ISA 600 (Revised).

The formal communication from the group engagement team to component auditors detailing the work to be performed, materiality levels, risks identified, reporting requirements, and ethical obligations under ISA 600 (Revised).

The engagement partner responsible for the direction, supervision, and performance of the group audit engagement, and for the auditor's report on the group financial statements under ISA 600 (Revised).

The partner responsible for the direction, supervision, and performance of the group audit engagement and for the auditor's report on the group financial statements under ISA 600 (Revised).

The engagement partner, partners, and staff at the group level who establish the overall group audit strategy, communicate with component auditors, and evaluate audit evidence obtained for the group opinion.

Hedge accounting is an optional accounting treatment under IFRS 9 that aligns the recognition of gains or losses on a hedging instrument with those on the hedged item, reducing income...

The Handelsgesetzbuch (HGB) is the German Commercial Code that prescribes bookkeeping, financial reporting, and statutory audit requirements for all merchants and corporations in Germany,...

Highest and best use is the use of a non-financial asset by market participants that would maximise the asset's value, considering uses that are physically possible, legally permissible, and...

The IAASB is the independent standard-setting body within IFAC that develops International Standards on Auditing (ISAs) and other assurance, quality management, and related services standards.

A temporary difference under IAS 12 reverses over time and creates a deferred tax asset or liability, while a permanent difference never reverses and affects only the current tax charge with no...

Value in use measures an asset's worth to the entity through discounted future cash flows, while fair value less costs of disposal measures what the market would pay for it today minus the...

A provision is a liability recognised on the balance sheet when an outflow of resources is probable and measurable, while a contingent liability is a possible obligation disclosed in the notes...

Under IAS 38, research costs are expensed as incurred because the entity cannot yet prove future economic benefit, while development costs are capitalised as an intangible asset only after all six...

The IASB is the independent standard-setting body of the IFRS Foundation responsible for developing and issuing IFRS Accounting Standards and IFRS Sustainability Disclosure Standards.

The IDW (Institut der Wirtschaftsprüfer in Deutschland e.V.) is the voluntary professional body of German public auditors that develops auditing and accounting standards (IDW Prüfungsstandards,...

IESBA is the independent standard-setting body under IFAC that develops the International Code of Ethics for Professional Accountants, establishing ethical requirements and independence standards...

IFAC is the global organisation for the accountancy profession, supporting the development of international standards on auditing, ethics, education, and public sector accounting through its...

Control under IFRS 10 requires the investor to have power over the investee, exposure to variable returns, and a link between the two (triggering full consolidation), while significant influence...

Under IFRS 15, over-time recognition spreads revenue across the period of performance when one of three criteria in paragraph 35 is met, while point-in-time recognition records the full amount at...

Under IFRS 16, a lessee recognises a right-of-use asset and a lease liability on the balance sheet for virtually every lease, whereas the superseded IAS 17 kept operating leases off balance sheet...

The acquisition method under IFRS 3 requires an acquirer to measure the acquiree's identifiable assets and liabilities at fair value on the acquisition date, recognising any excess as goodwill.

IFRS 9 requires an entity to classify every financial asset into one of three measurement categories (amortised cost, fair value through profit or loss, or fair value through other comprehensive...

The IFRS 9 simplified approach measures expected credit losses (ECL) at lifetime ECL from day one, skipping the three-stage impairment model that the general model requires; it applies to trade...

The IFRS for SMEs Accounting Standard is a self-contained framework (fewer than 330 pages) that simplifies recognition, measurement, and disclosure requirements from full IFRS Accounting Standards...

The IFRS Foundation is the not-for-profit public interest organisation that oversees the IASB and ISSB, responsible for governance, funding, and promotion of IFRS Accounting and Sustainability...

IAS standards were issued by the International Accounting Standards Committee (IASC) between 1973 and 2001, while IFRS standards are issued by its successor body, the International Accounting...

Impact materiality is one half of the double materiality assessment under the CSRD, requiring an entity to identify and report sustainability matters where its operations or value chain cause...

Impairment of assets occurs when an asset's carrying amount exceeds its recoverable amount, requiring the entity to recognise an impairment loss to reduce the carrying amount under IAS 36.

The income approach is a valuation technique under IFRS 13 that converts future amounts (cash flows or earnings) into a single discounted present value, used whenever market prices or replacement...

The Income Inclusion Rule (IIR) is the primary charging mechanism under the OECD Pillar Two GloBE framework, requiring a parent entity to pay top-up tax when any of its constituent entities is...

The incremental borrowing rate (IBR) is the rate of interest a lessee would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of similar...

The susceptibility of an assertion to a misstatement that could be material, before considering any related controls. Driven by the nature of the item itself and assessed on a spectrum under ISA 315 (Revised 2019).

Inherent risk is the susceptibility of an assertion to misstatement before controls. Control risk is the risk that controls will not prevent or detect such misstatement. Together they form the risk of material misstatement.

The liabilities an insurer recognises for its obligations under insurance contracts, measured using either the general measurement model or the premium allocation approach prescribed by IFRS 17.

An intangible asset is an identifiable non-monetary asset without physical substance that an entity controls and from which it expects future economic benefits, recognised on the balance sheet...

An intercompany elimination is the removal, during consolidation, of transactions, balances, income, and expenses between entities within the same group so that the consolidated financial...

The interest coverage ratio measures how many times an entity's operating profit covers its interest expense, serving as a primary indicator in going concern assessments and debt covenant...

The auditor's evaluation of whether the client's controls are properly designed and implemented, and where reliance is planned, whether they operate effectively enough to reduce risk of material misstatement.

An internally generated intangible asset is a non-monetary asset without physical substance that an entity creates through its own activities, recognised only when the project reaches the...

International Standards on Auditing are the authoritative requirements issued by the IAASB that govern how auditors plan and execute financial statement audits, adopted directly or with national...

The International Standards on Auditing (ISAs) are the authoritative requirements issued by the IAASB that govern how independent auditors plan, execute, report on, and document financial...

Inventory turnover measures how many times an entity sells and replaces its inventory during a period, calculated by dividing cost of sales by average inventory carried at the lower of cost and...

An IRO assessment is the structured process under the European Sustainability Reporting Standards by which an entity identifies and evaluates its sustainability-related impacts on people and the...

ISA 240 (Revised) introduces expanded requirements for fraud risk identification and response, reflecting evolving fraud patterns and tightening the auditor's obligations around professional skepticism.

ISA 315 (Revised 2019) replaced the original with a more structured risk identification and assessment framework, introducing the spectrum of inherent risk concept and expanded IT requirements.

ISA 570 (Revised 2024) overhauls the auditor's going concern responsibilities by requiring a dedicated going concern section in every audit report and mandating a 'gross' evaluation of events...

The ISA Clarity Project was a five-year initiative (2004 to 2009) by the IAASB that restructured all 36 International Standards on Auditing into a uniform format separating requirements from...

The international standard governing how a service auditor examines and reports on controls at a service organization that are relevant to user entities' financial reporting. It produces Type I and Type II reports.

ISAE 3402 is the international standard for service organization reports. SOC 1 is the US equivalent under AT-C 320. Both cover controls relevant to financial reporting, but differ in jurisdiction and standard framework.

ISQM 1 requires every audit firm to design, implement, and operate a quality management system with defined quality objectives, quality risks, and responses that together provide reasonable...

ISQC 1 required audit firms to maintain policies and procedures for quality control, while its replacement, ISQM 1, demands a risk-based quality management system in which firms identify quality...

ISSA 5000 is the IAASB's stand-alone international standard governing assurance engagements on sustainability information, covering both limited and reasonable assurance regardless of the...

Policies and procedures governing an entity's IT environment that support the reliable functioning of application controls. ISA 315 (Revised 2019) requires auditors to identify and evaluate ITGCs relevant to the audit.

The jaarrekening is the annual financial statements that every Dutch BV, NV, cooperative, and mutual guarantee association must prepare under BW2 Title 9, comprising a balance sheet, profit and...

The Jahresabschluss is the set of annual financial statements that every German corporation must prepare under HGB §242, consisting of a balance sheet (Bilanz) and a profit and loss account...

Joint control is the contractually agreed sharing of control over an arrangement, existing only when decisions about the relevant activities require the unanimous consent of the parties sharing...

A joint operation is a joint arrangement under IFRS 11 in which the parties that share joint control have rights to the assets and obligations for the liabilities relating to the arrangement,...

A joint venture is a joint arrangement in which two or more parties that share joint control have rights to the net assets of the arrangement rather than rights to its individual assets and...

A joint venture gives its parties rights to the net assets of the arrangement and is accounted for under the equity method, while a joint operation gives each party direct rights to specific...

A journal entry is the formal record of a financial transaction in an entity's accounting system, debiting one or more accounts and crediting one or more accounts by equal amounts, forming the...

The mandatory audit procedure under ISA 240.32(a) requiring the auditor to test the appropriateness of journal entries and other adjustments recorded in the general ledger, targeting entries that may have been used to record fraudulent transactions.

A misstatement arising when the auditor concludes that management's judgment about an accounting estimate, policy selection, or disclosure is unreasonable, and a different judgment would produce a more appropriate amount.

The matters that, in the auditor's professional judgment, were of most significance in the audit of the current period financial statements. Required for listed entity audits under ISA 701.

Key audit matters (ISA 701) communicate the most significant matters in the audit. Emphasis of matter paragraphs (ISA 706) draw attention to matters already disclosed in the financial statements. Different triggers and requirements.

A lease incentive is any payment or reimbursement made by a lessor to a lessee (or any cost borne by the lessor on the lessee's behalf) in connection with a lease, deducted from the initial...

A lease liability is the obligation of a lessee to make lease payments, measured at the present value of the lease payments not yet made at the commencement date, as required by IFRS 16.

A lease modification is a change in the scope of a lease or the consideration for a lease that was not part of the original terms, requiring the lessee to determine whether the change creates a...

The lease term under IFRS 16 is the non-cancellable period of a lease plus any periods covered by an extension option the lessee is reasonably certain to exercise or a termination option the...

A legal obligation is a present obligation that derives from a contract, legislation, or other operation of law, requiring an entity to recognise a provision under IAS 37 when settlement is...

Lifetime expected credit loss (lifetime ECL) is the total credit loss an entity expects on a financial instrument over its remaining life, weighted by the probability of that loss occurring.

The level of assurance obtained when the practitioner reduces engagement risk to an acceptable level that is higher than for reasonable assurance. The conclusion is expressed in negative form.

Limited assurance on sustainability information is an engagement in which a practitioner performs less extensive procedures than a reasonable assurance engagement and concludes in negative form...

A limited assurance engagement on sustainability is an engagement in which the practitioner performs less extensive procedures than a reasonable assurance engagement and concludes whether anything...

Location-based emissions reflect the average carbon intensity of the electricity grid where energy is consumed, while market-based emissions reflect the specific energy sources an entity has...

Loss given default (LGD) is the share of a financial asset's exposure that the holder expects to lose if the borrower defaults, expressed as a percentage after accounting for recoveries from...

A low-value asset exemption under IFRS 16 allows a lessee to recognise lease payments for assets with an individual new value of approximately USD 5,000 or less as an expense on a straight-line...

The person(s) with executive responsibility for conducting the entity's operations, as defined in ISA 200.13(m). In an audit context, management is accountable for preparing the financial statements and maintaining internal control.

The ability of management to manipulate accounting records or prepare fraudulent financial statements by bypassing otherwise effective internal controls, regardless of how well designed those controls are. A presumed fraud risk on every audit engagement.

An individual or organisation with expertise in a field other than accounting or auditing, whose work is used by the entity to help prepare the financial statements. The entity engages the expert; resulting figures are management's responsibility under ISA 500.8.

The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or businesses...

A master file provides tax authorities with a high-level overview of a multinational group's global business operations and transfer pricing policies, while a local file documents the specific...

The matching principle requires an entity to recognise expenses in the same period as the revenues they help generate, ensuring that the income statement reflects the economic cost of earning...

Material uncertainty related to going concern exists when events or conditions may cast significant doubt on the entity's ability to continue as a going concern and the outcome depends on future events whose occurrence is uncertain.

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

Materiality is the principle under the IFRS Conceptual Framework and IAS 1 that information is material if omitting or misstating it (or obscuring it through inappropriate aggregation) could...

Materiality is the threshold for the audit opinion. Performance materiality is the lower amount set to reduce the risk that aggregate uncorrected and undetected misstatements exceed materiality. Both governed by ISA 320.

Minimum safeguards are the social and governance due diligence procedures that an entity must have in place before any of its economic activities can qualify as taxonomy-aligned under the EU...

A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and what is required under the applicable financial reporting framework, whether caused by error or fraud.

Any opinion other than unmodified, issued when the auditor concludes that the financial statements contain a material misstatement or when the auditor cannot obtain sufficient appropriate evidence. ISA 705 sets out three types: qualified, adverse, and disclaimer of opinion.

A statistical sampling method in which each individual monetary unit in a population has an equal chance of selection, giving proportionally greater coverage to high-value items. Also called PPS sampling.

Monitoring and remediation is the component of a firm's system of quality management under ISQM 1 that provides information about the design, implementation, and operation of the quality...

The entity's own process for evaluating whether internal control components are present and functioning over time, including identifying deficiencies and taking corrective action. Required understanding under ISA 315.21(e).

Monetary unit sampling selects individual currency units and weights toward high-value items. Classical variables sampling selects physical items and estimates total population value. Each suits different populations and objectives.

The NBA (Koninklijke Nederlandse Beroepsorganisatie van Accountants) is the public-law professional body that registers all Dutch accountants, sets auditing and ethical standards through the NV...

A confirmation request that asks the confirming party to respond to the auditor only if the party disagrees with the information provided, meaning a non-response is treated as implicit agreement, under ISA 505.

A net investment hedge is an IFRS 9 hedge designation that protects the parent entity's interest in a foreign operation against exchange rate movements, with gains and losses on the hedging...

Net profit margin is the percentage of revenue that remains as profit after all expenses, calculated by dividing net profit by revenue as presented in the statement of profit or loss under IAS 1,...

The NIS2 Directive (Directive (EU) 2022/2555) is the EU's updated cybersecurity law requiring essential and important entities across 18 sectors to implement risk-management measures and report...

Events after the reporting period that are indicative of conditions which arose after the end of the reporting period. IAS 10 requires disclosure but not adjustment of amounts when these events are material.

A non-controlling interest is the portion of equity in a subsidiary that is not attributable, directly or indirectly, to the parent entity, presented as a separate component of equity in the...

The risk that the auditor reaches an incorrect conclusion for any reason not related to sampling, including using inappropriate audit procedures, failing to recognise a misstatement in the evidence examined, or misinterpreting test results.

An audit sampling approach in which the auditor does not use probability theory to measure sampling risk or evaluate results, relying instead on professional judgment.

Notes to the financial statements are the structured disclosures that accompany the primary financial statements, providing the accounting policies, disaggregation of line items, judgment...

Observable inputs are market-based data points that reflect the assumptions market participants would use when pricing an asset or liability, forming the basis for Level 1 and Level 2 measurements...

The assertion that transactions and events recorded in the financial statements actually took place during the reporting period and relate to the entity.

An onerous contract is a contract in which the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it, requiring the entity to recognise a...

An OOB (Organisatie van Openbaar Belang) is a Dutch designation for entities whose statutory audit is subject to heightened requirements under the Wta and EU Regulation 537/2014, including...

The operating cash flow ratio divides cash generated from operating activities by current liabilities, measuring whether an entity produces enough cash from its core business to cover short-term...

An operating lease from the lessor's perspective is a lease under IFRS 16 that does not transfer substantially all the risks and rewards incidental to ownership of the underlying asset, requiring...

An operating segment is a component of an entity that earns revenue and incurs expenses, whose operating results the chief operating decision maker reviews regularly, and for which discrete...

Other comprehensive income is the portion of total comprehensive income under IAS 1 that captures gains and losses excluded from profit or loss, including foreign currency translation differences,...

Financial or non-financial information included in an entity's annual report beyond the audited financial statements and the auditor's report. ISA 720 (Revised) requires the auditor to read it and consider whether it is materially inconsistent with the financial statements or the auditor's knowledge.

An additional paragraph in the auditor's report that communicates a matter not presented or disclosed in the financial statements but that the auditor considers relevant to users' understanding of the audit or the auditor's report.

A parent entity is an entity that controls one or more other entities (subsidiaries) and is therefore required to present consolidated financial statements that combine the assets, liabilities,...

Payable days (days payable outstanding) measures the average number of days an entity takes to pay its trade suppliers, calculated by dividing trade payables by cost of sales and multiplying by...

The PCAOB is the US public body established by the Sarbanes-Oxley Act of 2002 that oversees the audits of public companies and SEC-registered brokers and dealers to protect investors by...

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

A performance obligation is a promise in a contract with a customer to transfer a distinct good or service (or a bundle of goods or services), and it forms the unit of account to which an entity...

A permanent difference is an item of income or expense that is recognised in accounting profit but will never be taxable or deductible (or vice versa), creating a gap between accounting profit and...

A permanent establishment is a fixed place of business through which an enterprise carries on its activity in another jurisdiction, creating a taxable presence that requires the enterprise to...

Pillar Two is the OECD's global anti-base erosion framework that imposes a 15% minimum effective tax rate on multinational enterprise groups with consolidated revenue of at least EUR 750 million,...

A confirmation request that asks the confirming party to respond directly to the auditor in all cases, either by confirming agreement or by supplying the requested information, under ISA 505.

A positive confirmation requires a response in all cases. A negative confirmation requests a response only if the recipient disagrees. ISA 505 determines when each type is appropriate.

The professional responsible for performing an assurance engagement and issuing the assurance report under ISAE 3000. Covers any qualified professional performing assurance work.

Prepaid expenses are assets recognised when an entity pays for goods or services before receiving them, representing the right to future economic benefits that will be consumed or expire in...

A present obligation is a duty to transfer economic resources that exists at the reporting date as a result of a past event, forming the first recognition criterion for a provision under IAS 37...

The set of assertions the auditor uses when evaluating whether financial information is correctly presented and whether disclosures are adequate, properly classified, and understandable.

The presentation currency is the currency in which the financial statements are presented, which may differ from the entity's functional currency, requiring translation under IAS 21.

A principal controls a good or service before transferring it to the customer and recognises revenue at the gross amount; an agent arranges for another party to provide the good or service and...

Probability of default is the likelihood that a borrower or counterparty will fail to meet its contractual payment obligations within a defined time horizon, used under IFRS 9 to measure expected...

The attitude ISA 200 requires auditors to maintain throughout every engagement: a questioning mind paired with critical assessment of audit evidence, staying alert to conditions that may indicate misstatement from fraud or error.

The auditor's best estimate of the total misstatement in a population, calculated by extrapolating errors found in a sample to the entire population under ISA 530.14.

Proportionate consolidation is a method of accounting for interests in jointly controlled entities under the former IAS 31, where the venturer recognised its share of each asset, liability,...

A provision is a liability of uncertain timing or amount, recognised when an entity has a present obligation from a past event, settlement is probable, and a reliable estimate of the amount can be...

A provision matrix is a simplified approach under IFRS 9 that allows an entity to measure the loss allowance for trade receivables at an amount equal to lifetime expected credit losses, using...

A Prüfungsbericht is the long-form audit report that the statutory auditor (Wirtschaftsprüfer) must prepare under HGB §321, addressed to the supervisory board and management, covering the audit's...

A Qualified Domestic Minimum Top-up Tax (QDMTT) is a domestic top-up levy that brings the effective tax rate of in-scope multinational constituent entities to 15% within the jurisdiction itself,...

A type of modified audit opinion issued when the auditor concludes that misstatements are material but not pervasive, or when the auditor cannot obtain sufficient appropriate evidence but the possible effects are not pervasive. Uses 'except for' wording.

A qualified opinion uses 'except for' language when misstatements are material but not pervasive. An adverse opinion states the financial statements do not give a true and fair view when misstatements are both material and pervasive.

Quality objectives are the outcomes an audit firm must achieve through its system of quality management under ISQM 1, spanning governance, ethics, engagement acceptance, engagement performance,...

Quality responses are the policies and procedures a firm designs and implements under ISQM 1 to address identified quality risks, forming the operational layer that translates the firm's quality...

Quality risks are the conditions, events, circumstances, actions, or inactions within a firm's system of quality management that could adversely affect the achievement of one or more quality...

The quick ratio (also called the acid-test ratio) measures whether an entity can cover its short-term obligations from liquid assets alone (cash, receivables, short-term investments, and...

A Registeraccountant (RA) is a legally protected Dutch professional title under the Wet op het accountantsberoep (Wab) for university-educated accountants registered with the NBA, authorised...

The level of assurance obtained when the practitioner reduces engagement risk to an acceptably low level, expressed as a positive-form conclusion. It is the level of assurance provided by an audit of financial statements.

Reasonable assurance in sustainability reporting is the higher of two assurance levels under ISSA 5000, requiring the practitioner to assess risks of material misstatement at the assertion level...

Reasonable assurance provides a high level of assurance expressed positively. Limited assurance provides a meaningful but lower level expressed negatively. The distinction determines the depth of procedures performed.

Receivable days (days sales outstanding, DSO) measures the average number of days an entity takes to collect cash from credit customers, calculated by dividing trade receivables by revenue and...

Recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use, serving as the ceiling against which the carrying amount is compared when testing for...

A person or entity that has control, joint control, or significant influence over the reporting entity (or vice versa), such that one party can affect the decisions or transactions of the other, under ISA 550 and IAS 24.

Research costs are expensed as incurred because the activity cannot yet demonstrate a future economic benefit, while development costs are capitalised as an intangible asset once six recognition...

Residual value is the estimated amount an entity expects to receive from disposing of a non-financial asset at the end of its useful life, after deducting expected disposal costs, used to...

A residual value guarantee is a commitment made to a lessor ensuring that the value of an underlying asset at the end of the lease term will be at least a specified amount, with expected payments...

A restructuring provision is a provision recognised under IAS 37 for the estimated costs of a programme that materially changes the scope of a business or the manner in which it is conducted, but...

Return on assets (ROA) measures how efficiently an entity generates profit from its total asset base, calculated as net income divided by average total assets, and used by auditors as a key...

Return on equity (ROE) measures how much net profit an entity generates relative to its shareholders' equity, expressed as a percentage, and serves as a key ratio in the substantive analytical...

Return on invested capital (ROIC) measures how effectively an entity converts its debt and equity funding into operating profit, calculated as net operating profit after tax divided by invested...

The revaluation model is an accounting policy under IAS 16 (and IAS 38 where an active market exists) that measures property, plant, and equipment at fair value less subsequent depreciation and...

Revenue recognition at a point in time occurs when an entity transfers control of a promised good or service to the customer in a single moment rather than progressively, and the entity recognises...

The rebuttable presumption under ISA 240 that the auditor must treat revenue recognition as a significant risk of material misstatement due to fraud, because revenue is the line item most commonly subject to manipulation.

Revenue recognition over time is the pattern under IFRS 15 in which an entity recognises revenue progressively as it satisfies a performance obligation, rather than at a single point when control...

The revenue recognition principle requires an entity to recognise revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer, measured at...

A limited assurance engagement in which a practitioner performs inquiry and analytical procedures to conclude whether anything indicates the financial statements are materially misstated. Produces a negative-form conclusion under ISRE 2400 (Revised).

An audit provides reasonable assurance through extensive procedures and a positive opinion. A review provides limited assurance through inquiry and analytical procedures with a negative conclusion.

A right of return is a contractual or customary entitlement allowing a customer to send back a product for a refund or exchange, requiring the seller to recognise revenue only for the goods not...

A right-of-use asset represents a lessee's right to use an underlying asset for the lease term, measured at cost including the initial lease liability plus any prepayments, initial direct...

The assertion that the entity holds or controls the rights to assets reported on the balance sheet and has genuinely incurred the obligations recorded as liabilities.

The audit procedures performed to obtain an understanding of the entity and its environment and to identify conditions creating risks of material misstatement. ISA 315.14–18 requires all four types: inquiry, observation, inspection, and analytical procedures.

The risk that the financial statements contain a material misstatement before the audit is performed. The combination of inherent risk and control risk, assessed at both the financial statement level and the assertion level.

The Raad voor de Jaarverslaggeving (RJ) is the independent Dutch Accounting Standards Board that publishes the Richtlijnen voor de Jaarverslaggeving, the accounting guidelines that give practical...

Root cause analysis in audit quality is the process of investigating why a deficiency occurred within a firm's system of quality management, rather than treating the symptom alone, required by...

A sale and leaseback is a transaction in which an entity sells an asset and immediately leases it back from the buyer, with the accounting treatment under IFRS 16 depending on whether the transfer...

The process of calculating how many items an auditor must test from a population to draw a reliable conclusion about that population, governed by the factors in ISA 530 and the auditor's acceptable level of sampling risk.

The risk that the auditor's conclusion based on testing a sample differs from the conclusion that would be reached if the same procedure were applied to the entire population, as defined in ISA 530.5(c).

SASB standards identify financially material sustainability topics across 77 industries for investor decision-making, while ESRS prescribes mandatory disclosures under the EU's CSRD using a double...

SBR is the Dutch national standard for structuring and transmitting financial data electronically to the KVK, the Belastingdienst, CBS, and participating banks, using XBRL-based taxonomies defined...

Science-based targets are greenhouse gas emission reduction targets that a company sets in line with the level of decarbonisation required to limit global warming to 1.5 degrees Celsius, typically...

Scope 1 emissions are direct greenhouse gas (GHG) emissions from sources an entity owns or controls, including fuel combustion on site, company-operated vehicles, and industrial process releases,...

Scope 2 emissions are indirect greenhouse gas emissions from the generation of purchased or acquired electricity, steam, heating, and cooling consumed by a reporting entity, calculated using...

Scope 3 emissions are the indirect greenhouse gas emissions that occur across a reporting entity's upstream and downstream value chain, outside its owned or controlled operations, disclosed under...

The process by which the group engagement team determines the nature, timing, and extent of work to be performed on each component, driven by the risk-based approach under ISA 600 (Revised).

Sector-specific ESRS were the planned second layer of European Sustainability Reporting Standards designed to supplement the sector-agnostic Set 1 with disclosure requirements tailored to...

Segment reporting under IFRS 8 requires entities whose debt or equity instruments are publicly traded to disclose financial information about their operating segments, enabling users of financial...

An entity that provides services to user entities where those services form part of the user entity's information system relevant to financial reporting. Defined in ISAE 3402.8(m) and ISA 402.

The short-term lease exemption under IFRS 16 allows a lessee to exclude leases with a remaining term of 12 months or less at the commencement date from on-balance-sheet recognition, instead...

A component classified as individually financially significant to the group under the pre-revision ISA 600. Replaced by risk-based scoping in ISA 600 (Revised), effective for periods beginning 15 December 2023.

A significant increase in credit risk (SICR) is the IFRS 9 trigger that moves a financial asset from Stage 1 (12-month expected credit losses) to Stage 2 (lifetime expected credit losses),...

Significant influence is the power to participate in the financial and operating policy decisions of an investee without controlling or jointly controlling it, presumed to exist when an investor...

An identified risk of material misstatement for which inherent risk is close to the upper end of the spectrum, requiring special audit consideration under ISA 315.28.

An engagement to form an opinion on one financial statement or a specific element of a financial statement, rather than a complete set. ISA 805 (Revised) governs these engagements.

An assurance report on controls at a service organization issued under the AICPA's SSAE 18, covering controls relevant to user entities' financial reporting. The US equivalent of an ISAE 3402 report.

SOC 1 covers financial reporting controls (equivalent to ISAE 3402). SOC 2 covers Trust Services Criteria (security, availability, etc.). SOC 3 is a public summary of SOC 2. Only SOC 1 is relevant under ISA 402.

An assurance report on controls at a service organization addressing the AICPA Trust Services Criteria (security, availability, processing integrity, confidentiality, privacy). Not equivalent to a SOC 1 or ISAE 3402 report for financial statement audit purposes.

Financial statements prepared under a framework designed for specific users rather than the general public, such as tax bases, regulatory requirements, or contractual provisions. ISA 800 (Revised) governs their audit.

A materiality level lower than overall materiality, set for particular classes of transactions, account balances, or disclosures where users are especially sensitive to misstatements of lesser amounts.

The SPPI test is the IFRS 9 assessment that determines whether the contractual cash flows of a financial asset consist solely of payments of principal and interest on the principal amount...

Staging is the IFRS 9 mechanism that assigns every financial asset measured at amortised cost (or at fair value through other comprehensive income) to one of three categories based on credit...

Stakeholder engagement is the structured process by which an undertaking consults affected parties and users of sustainability statements, then incorporates their views into its double materiality...

The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer, and it serves as the basis for allocating the transaction price across...

The StaRUG (Unternehmensstabilisierungs- und -restrukturierungsgesetz) is the German pre-insolvency law that lets companies facing imminent illiquidity restructure liabilities outside formal...

The statement of cash flows presents an entity's cash inflows and outflows during a period, classified into operating, investing, and financing activities, as required by IAS 7.

The statement of changes in equity is the primary financial statement that reconciles each component of equity from its opening to its closing balance for a reporting period, capturing profit or...

The statement of comprehensive income is the financial statement that presents an entity's profit or loss together with all items of other comprehensive income for a reporting period, showing...

The statement of financial position is the primary financial statement that reports an entity's assets, liabilities, and equity at a specific date, providing the basis for assessing liquidity,...

The statement of profit or loss is the primary financial statement that presents an entity's income and expenses for a reporting period, showing how revenue translates into profit or loss, as...

A sampling approach in which every item in the population has a known, non-zero probability of selection, and the auditor uses probability theory to evaluate results, including measuring sampling risk.

Statistical sampling uses probability theory to select items and evaluate results, measuring sampling risk mathematically. Non-statistical sampling relies on the auditor's judgment. Both are valid under ISA 530.

A stichting (Dutch foundation) that operates an enterprise becomes subject to statutory audit requirements under BW2 Title 9 when it exceeds the size thresholds in article 2:396, with the initial...

Straight-line depreciation allocates the depreciable amount of an asset evenly over its useful life, producing a constant annual charge that reduces the carrying amount each period until only the...

The process of dividing a population into sub-populations (strata) that share common characteristics, so that the auditor can design samples that target each stratum appropriately and reduce overall sample size without sacrificing audit assurance.

The outcome of measuring or evaluating the underlying subject matter against applicable criteria. In an audit, it is the financial statements; in sustainability assurance, it is the sustainability report.

Events that occur between the date of the financial statements and the date of the auditor's report. ISA 560 requires the auditor to obtain sufficient appropriate evidence about whether these events require adjustment of, or disclosure in, the financial statements.

A service organization used by another service organization to perform services that are part of the information system relevant to the user entities' financial reporting.

A subsidiary is an entity controlled by another entity (the parent), where control means the parent has power over the investee, exposure to variable returns from its involvement, and the ability...

Audit procedures designed to detect material misstatements at the assertion level, consisting of tests of details and substantive analytical procedures, required on every audit engagement under ISA 330.

The quantity and quality of evidence the auditor needs before concluding on each assertion and signing the opinion, where sufficiency measures amount and appropriateness measures relevance and reliability.

Condensed financial statements derived from an entity's audited annual financial statements, prepared to inform users who need an overview without full detail. ISA 810 governs the auditor's engagement to report on them.

The schedule where the auditor accumulates all misstatements identified during the audit that management has not corrected. ISA 450 requires this as the basis for evaluating whether uncorrected misstatements are material.

Sustainability assurance is an assurance engagement performed on sustainability information reported by an entity, providing either limited or reasonable assurance on whether the information is...

Sustainability due diligence under the CSDDD (Directive 2024/1760) is the legally mandated process by which in-scope EU and non-EU companies identify, prevent, mitigate, and remediate adverse...

A sustainability reporting boundary is the perimeter of entities and value chain relationships that a reporting undertaking includes in its ESRS sustainability statement, anchored to the...

A sustainability statement is the dedicated section of an entity's management report that discloses material environmental, social, and governance information structured according to the European...

The tax base of an asset or liability is the amount attributed to that item for tax purposes under IAS 12, and the difference between this amount and the carrying amount in the financial...

A taxonomy-aligned activity is an economic activity that satisfies all four conditions under Article 3 of the EU Taxonomy Regulation (EU) 2020/852: substantial contribution to at least one...

A taxonomy-eligible activity is an economic activity listed in the delegated acts of the EU Taxonomy Regulation (Regulation 2020/852) as potentially contributing to one of the six environmental...

The TCFD was a Financial Stability Board initiative that established a four-pillar framework (governance, strategy, risk management, metrics and targets) for voluntary climate-related financial...

A temporary difference is the difference between the carrying amount of an asset or liability in the statement of financial position and its tax base, giving rise to future taxable or deductible...

A termination option in a lease gives the lessee (or, less commonly, the lessor) the right to end the lease before the contractual expiry date, and IFRS 16 requires the lessee to assess at...

The agreed conditions under which an audit is performed, covering objective, scope, auditor and management responsibilities, and the applicable financial reporting framework. ISA 210 requires these before audit work begins.

Audit procedures that evaluate whether a client's internal controls operated effectively during the period under audit, determining how much the auditor can rely on those controls to reduce the extent of substantive testing.

Tests of controls evaluate whether internal controls operated effectively. Substantive procedures detect material misstatements directly. The auditor's control reliance strategy determines the mix.

Substantive audit procedures applied to individual transactions, account balances, or disclosures to detect material misstatements directly, without relying on the operating effectiveness of the client's internal controls.

Tests of details examine individual items for misstatements. Substantive analytical procedures evaluate relationships between data to identify unexpected variations. Both are types of substantive procedures under ISA 330.

The person(s) or organisation(s) with responsibility for overseeing the entity's strategic direction and accountability, including the financial reporting process. ISA 260 (Revised) requires identification on every engagement.

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.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, as determined under IFRS 15.

Transfer pricing refers to the rules and methods for pricing transactions between related parties (especially within multinational enterprises) to ensure that profits are allocated and taxed...

Transfer pricing documentation is the set of records that a multinational group prepares to demonstrate that its intercompany transactions are priced at arm's length, as required by the OECD...

Transition risk arises from the shift to a low-carbon economy (policy changes, technology disruption, market repricing), while physical risk arises from the direct effects of climate change...

A trial balance is a listing of all general ledger account balances at a specific date, organised into debit and credit columns, used to verify that total debits equal total credits before the...

A service auditor's report under ISAE 3402 covering the description of a service organization's system and the suitability of control design at a specific point in time. Does not test operating effectiveness.

A Type I report covers control design at a point in time. A Type II report covers both design and operating effectiveness over a period. The distinction determines what audit evidence the report provides.

A service auditor's report under ISAE 3402 covering design and operating effectiveness of controls at a service organization over a specified period. Provides evidence for user auditors to reduce substantive testing.

An uncertain tax position is a tax treatment where there is uncertainty over whether the relevant tax authority will accept the treatment, requiring the entity to assess detection probability and...

The process by which the auditor obtains sufficient knowledge of the client's business, industry, regulation, and financial reporting framework to identify and assess risks of material misstatement under ISA 315 (Revised 2019).

The Undertaxed Profits Rule is the backstop mechanism within the OECD's Pillar Two framework that allows a jurisdiction to collect top-up tax when low-taxed income of a multinational group is not...

Units of production depreciation allocates the depreciable amount of an asset based on actual output or usage rather than the passage of time, matching the depreciation charge to the periods in...

The auditor's conclusion that the financial statements are free from material misstatement and comply with the applicable financial reporting framework. Often called a 'clean opinion'.

Unobservable inputs are assumptions about how market participants would price an asset or liability when no observable market data exists, used to measure Level 3 fair values under IFRS 13 and...

Useful life is the period over which an entity expects to consume the economic benefits of an asset, or the number of production units it expects to obtain, determining the basis for systematic...

An organization that uses the services of a service organization where those services are part of the user entity's information system relevant to financial reporting. The user auditor retains full responsibility under ISA 402.

Management's claim that assets, liabilities, and equity interests are recorded at appropriate amounts and that any resulting valuation or allocation adjustments are properly reflected.

A value chain in sustainability reporting is the full range of upstream and downstream business relationships connected to a reporting entity, covering suppliers, distributors, and end users,...

Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit, used as one measure of recoverable amount under IAS 36.

Variable consideration is any portion of the transaction price in a contract with a customer that depends on the outcome of future events, such as discounts, rebates, refunds, performance bonuses,...

Variable lease payments are amounts owed by a lessee that change after the commencement date because they depend on an index, a rate, or a factor such as usage or performance, with only...

A statistical sampling method that estimates the total monetary misstatement or the total audited value of a population by measuring the value of each sampled item and extrapolating mathematically.

A procedure that traces a single transaction from initiation through the entity's information system to its recording in the financial statements, verifying that the auditor's understanding of the process and its controls is accurate.

A Wirtschaftsprüfer is a German public auditor licensed under the Wirtschaftsprüferordnung (WPO) to perform statutory audits (gesetzliche Abschlussprüfungen) of annual and consolidated financial...

Withholding tax is a levy deducted at source by a payer (or the payer's jurisdiction) on cross-border payments such as dividends, interest, royalties, and management fees, requiring the recipient...

Working capital is the difference between an entity's current assets and current liabilities, measuring short-term liquidity and the capacity to meet obligations as they fall due, classified under...

The Wirtschaftsprüferkammer (WPK) is the German public-law chamber that registers all Wirtschaftsprüfer and audit firms, administers the professional examination, operates the quality assurance...

Formal statements obtained from management confirming their responsibilities and the completeness of information provided to the auditor, along with specific assertions relevant to the financial statements, under ISA 580.

The Wet toezicht accountantsorganisaties (Wta) is the Dutch law that governs the licensing, quality requirements, and public oversight of audit firms performing statutory audits in the...

The Wwft is the Dutch anti-money laundering and counter-terrorist financing act that requires designated gatekeepers (including audit firms and accountants) to perform customer due diligence,...