| Adequate disclosure | All essential information as required by generally accepted accounting principles (or some other appropriate basis of accounting) is included in the financial statements.
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| Adverse opinion | An opinion issued by the auditors that the financial statements they have audited do not present fairly the financial position, results of operation, or cash flows in conformity with accounting principles generally accepted in the United States of America.
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| Audit risk | The risk that the auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated.
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| Auditors' report | A very precise document designed to communicate exactly the character and limitations of the responsibility being assumed by the auditors; in standard form, the report consists of an introductory paragraph, a scope paragraph, and an opinion paragraph.
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| Consistency | The concept of using the same accounting principles from year to year so that the successive financial statements issued by a business entity will be comparable.
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| Disclaimer of opinion | A form of report in which the auditors state that they do not express an opinion on the financial statements; it should include a separate paragraph stating the auditors' reasons for disclaiming an opinion and also disclosing any reservations they may have concerning the financial statements.
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| Error | An unintentional misstatement of financial statements or omission of an amount or a disclosure.
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| Fraud | For financial statement audits, "fraud" includes two types of intentional misstatements of financial statements—misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets. Legally, fraud is the misrepresentation by a person of a material fact, known by that person to be untrue or made with reckless indifference as to whether the fact is true, with intent to deceive and with the result that another party is injured.
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| Generally accepted auditing standards (GAAS) | A set of 10 standards adopted by the AICPA and binding on its members—designed to ensure the quality of the auditors'work.
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| Illegal acts | Violations of laws or governmental regulations.
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| Independence | A most important auditing standard, which prohibits CPAs from expressing an opinion on financial statements of an enterprise unless they are independent with respect to such enterprise; independence is impaired by a direct financial interest, service as an officer or trustee, certain loans to or from the enterprise, and various other relationships.
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| Inspection | (conducted by the Public Company Accounting Oversight Board) A process that leads to an assessment of the degree of compliance of each registered public accounting firm and associated persons of that firm with the Sarbanes-Oxley Act of 2002 and the board's requirements in connection with its performance of audits, issuance of audit reports, and related matters.
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| Internal control | A process, effected by the entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (1) reliability of financial reporting; (2) effectiveness and efficiency of operations; and (3) compliance with applicable laws and regulations.
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| International Auditing and Assurance Standards Board (IAASB) | A committee of the International Federation of Accountants, established to issue standards on auditing and reporting practices to improve the degree of uniformity of auditing practices and related services throughout the world.
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| International Federation of Accountants (IFAC) | A worldwide organization of national accounting bodies to help foster a coordinated worldwide accounting profession with harmonized standards.
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| Peer review | The study and evaluation of a CPA firm's quality control policies and procedures by another CPA firm or a team of qualified CPAs.
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| Public Company Accounting Oversight Board (PCAOB) | A board established by the Sarbanes-Oxley Act of 2002 to provide oversight of accounting firms that audit public companies by (1) establishing or adopting professional and ethical standards, (2) conducting inspections of CPA firms, and (3) enforcing compliance with professional and ethical standards. The board is composed of five individuals appointed by the SEC.
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| Qualified opinion | The appropriate form of audit report when there is a limitation in the scope of the audit or when the financial statements depart from GAAP significantly enough to require mention in the auditors' report, but not so significantly as to necessitate disclaiming an opinion or expressing an adverse opinion.
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| Quality control standards | AICPA standards for establishing quality control policies and procedures that provide reasonable assurance that all of a CPA firm's engagements are conducted in accordance with applicable professional standards.
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| Registered public accounting firm | A public accounting firm registered with the Public Company Accounting Oversight Board in accordance with the Sarbanes-Oxley Act of 2002. Any CPA firm auditing SEC reporting companies must be registered.
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| Standard unqualified opinion | The form of audit report issued when the examination was adequate in scope and the auditors believe that the financial statements present fairly the financial position, operating results, and cash flows in conformity with generally accepted accounting principles.
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