360 terms
The 150-hour rule is the education requirement in most US states that CPA licensure candidates complete 150 semester hours of college credit, including a bachelor's degree and specified accounting and business courses.
Account reconciliation compares a ledger balance with independent support, such as a bank statement or subledger, explains each difference, and is a core control over the accuracy of period-end balances.
An accounting estimate is a monetary amount in the financial statements that cannot be measured precisely and depends on judgment, such as an allowance or fair value, and carries estimation uncertainty and bias risk.
Accounting policies are the specific principles and methods management selects to prepare financial statements, such as how revenue is recognized or inventory costed, and GAAP requires them to be disclosed in the notes.
An accounts receivable aging lists customer balances by how long they have been outstanding, and auditors use it to select confirmations, test the allowance for credit losses and tie receivables to the ledger.
Accrual basis accounting records revenue when earned and expenses when incurred, regardless of when cash moves, and is the foundation of US GAAP financial statements for operating entities.
Accrued expenses are costs incurred in a period but not yet paid or invoiced, such as wages, interest, utilities, and professional fees, recorded as liabilities under accrual accounting.
The Acts Discreditable Rule says an AICPA member shall not commit an act discreditable to the profession, and its interpretations cover records requests, negligence in financial statements and government audit standards.
An adjusted trial balance is the trial balance after posting adjusting entries for accruals, deferrals, and audit adjustments, and it is the basis for the final financial statements.
An adjusting journal entry is a journal entry that corrects a misstatement or records an accrual, deferral or estimate. In an audit, the auditor may propose entries that management books or declines.
An adverse opinion states that the financial statements do not present fairly, in all material respects, in accordance with the applicable framework, because misstatements are both material and pervasive.
An agreed-upon procedures engagement has the practitioner perform procedures agreed with the engaging party and report the findings. The report gives no opinion, no conclusion and no assurance on the subject matter.
The AICPA is the national professional association of CPAs. It sets auditing standards for nonissuers through the ASB, issues the Code of Professional Conduct, runs the Peer Review Program, and develops the CPA Exam.
The AICPA Peer Review Program is the practice-monitoring program run by the AICPA and administered by state CPA societies and other entities. Firms that audit generally enroll and are reviewed every three years.
The allowance for credit losses is a valuation account that reduces financial assets to the amount expected to be collected, measured under ASC 326 using lifetime expected losses at inception.
Alternative procedures are other audit tests performed to get the evidence a confirmation would have provided, used when a confirmation request is not returned or a reply is unreliable.
Analytical procedures evaluate financial information by studying plausible relationships among financial and nonfinancial data, then investigating fluctuations or relationships that are inconsistent with other information or differ from expected amounts.
Application controls are automated or manual controls that apply to the processing of individual transactions in an application, such as edit checks, system calculations and approval workflows.
The Auditing Standards Board is the AICPA's senior technical committee that issues auditing and attestation standards for nonissuers, including SAS and SSAE, which are codified as AU-C and AT-C sections.
The ASC 606 five-step model identifies the contract, identifies performance obligations, determines the transaction price, allocates it to obligations, and recognizes revenue as each obligation is satisfied.
An attestation engagement is one in which a practitioner issues a report on subject matter, or on a responsible party's assertion about it, measured against suitable criteria, as an examination, review or agreed-upon procedures engagement.
Attribute sampling estimates how often a defined characteristic occurs in a population, most often the rate at which a control was not followed, and compares that rate with a tolerable deviation rate.
AU-C sections come from Statements on Auditing Standards, AR-C from SSARS, and AT-C from SSAE; each codifies the AICPA standards for audits, review and compilation work, and attestation engagements of nonissuers.
Audit data analytics is the use of automated tools and techniques to analyze whole populations of data for risk assessment, testing and anomaly detection, rather than relying only on samples.
Audit documentation is the record of the procedures performed, evidence obtained and conclusions reached, written so an experienced auditor with no prior connection to the engagement can understand the work.
Audit evidence is the information an auditor uses to reach conclusions about the financial statements, including the accounting records underlying them and other information such as confirmations, documents and observations.
Audit file assembly is the administrative closing of the engagement file after the report date, which under AU-C 230 should happen no later than 60 days after the report release date.
Audit teams are layered: staff perform procedures, seniors lead fieldwork and review staff work, managers plan and review the engagement, and partners take final responsibility and sign the report.
The audit planning memo records the overall audit strategy and audit plan: scope, timing, materiality, significant risks, team and the planned response, based on the auditor's understanding of the entity.
An audit program is a written list of the procedures to perform in an area, tailored to the assessed risks and the assertions affected, with space to record who did the work and the result.
Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated. It combines the risk of material misstatement with detection risk.
Audit sampling applies an audit procedure to less than 100 percent of the items in a population so that every sampling unit has a chance of selection, enabling conclusions about the whole population.
An audit gives reasonable assurance, a review gives limited assurance, and a compilation or preparation engagement gives none, so each service suits a different user need and carries a different cost.
An auditor's specialist is an individual or firm with expertise outside accounting and auditing whose work the auditor uses to obtain sufficient appropriate audit evidence.
Backlog is the contract value a contractor has signed but not yet earned as revenue; it is a management metric that differs from the remaining performance obligations disclosed under ASC 606.
Backup withholding is the 24 percent tax a payer must withhold from certain reportable payments when the payee has not provided a correct taxpayer identification number or has underreported interest or dividends.
A bank reconciliation review tests the client's year-end reconciliation by agreeing balances to the bank confirmation and the ledger, and testing deposits in transit, outstanding checks and other reconciling items.
A bargain purchase gain arises when the fair value of net identifiable assets acquired exceeds consideration transferred, recognized in earnings only after the acquirer reassesses its identification and measurement.
Benford's law says that in many naturally occurring sets of numbers the leading digit 1 appears about 30.1 percent of the time, and auditors use it to flag unusual digit patterns for follow-up.
Bonus depreciation is the additional first-year deduction under section 168(k), now 100 percent for qualified property acquired after January 19, 2025, and it produces large temporary differences and deferred tax liabilities.
Book-tax differences arise when GAAP income differs from taxable income because of timing items that reverse and permanent items that never do, reconciled on Schedule M-1 or M-3.
A bridge letter is a statement from a service organization's management that no significant changes or control failures occurred between the end of the SOC report period and a later date.
A budgetary comparison schedule presents the original budget, final budget, and actual results for the general fund and major special revenue funds with legally adopted budgets, usually as required supplementary information.
A business combination is a transaction in which an acquirer obtains control of a business, accounted for under ASC 805 using the acquisition method at fair value.
Form 1065 is the partnership return, Form 1120-S the S corporation return, and Form 1120 the C corporation return; the first two pass income to owners, while the third pays entity-level tax.
Busy season is the period of peak workload at accounting firms, roughly January through mid-April for calendar-year audit and tax clients, with a smaller peak in the fall around extended deadlines.
Capitalizing records a cost as an asset and depreciates it over its useful life, while expensing charges it to income immediately; ASC 360 and entity policy distinguish betterments from repairs.
The carve-out and inclusive methods are two ways a service organization's report treats a subservice organization: carve-out excludes its controls from the description and tests, while inclusive covers them.
Cash basis accounting records revenue when cash is received and expenses when cash is paid; it is not US GAAP, but can serve as a special purpose framework with proper disclosure.
The cash conversion cycle adds days inventory outstanding to days sales outstanding and subtracts days payable outstanding, showing how many days cash stays tied up in operations before it returns.
CECL, the current expected credit loss model in ASC 326-20, requires entities to record an allowance for lifetime expected credit losses on financial assets measured at amortized cost, using past events, current conditions and forecasts.
A Certified Fraud Examiner is a professional credentialed by the Association of Certified Fraud Examiners after meeting experience and education requirements and passing a four-section exam covering fraud schemes, law, investigation and prevention.
A change in principle is applied retrospectively and needs a preferability justification, while a change in estimate is applied prospectively in the period of change and future periods under ASC 250.
A change in tax accounting method is a change in how an item of income or deduction is treated on the return, requiring IRS consent on Form 3115 and usually a section 481(a) adjustment.
Change management is the set of controls over requesting, testing, approving and releasing changes to applications, databases and infrastructure so that unauthorized or untested changes do not reach production.
The chart of accounts is the structured list of general ledger accounts an entity uses to record transactions, and it determines how balances roll up into financial statement line items.
The chief audit executive is the leader of the internal audit function, who reports functionally to the board and is responsible for managing the function and conforming with the Global Internal Audit Standards.
Circular 230, codified at 31 CFR Part 10, is the Treasury regulation governing practice before the IRS, setting duties of diligence, return standards, and sanctions for CPAs, attorneys, enrolled agents, and others.
The clearly trivial threshold is the amount below which identified misstatements need not be accumulated, because they are clearly inconsequential individually and together under any measure of size, nature or circumstance.
Client continuance is a firm's periodic decision whether to keep serving an existing client, based on updated information about management integrity, independence, fees, risk, and the firm's capacity to perform the work.
Closing entries transfer the balances of temporary accounts such as revenue, expenses and dividends into retained earnings at period end, so each new period starts with those accounts at zero.
Commissions and referral fees are payments for recommending or selling a product or service, and the AICPA Code bars them for attest clients and requires disclosure to the client where they are permitted.
The common criteria are the security criteria in the trust services criteria, grouped as CC1 through CC9, that apply to every SOC 2 engagement and also support the other categories.
A compensating control limits the risk created by a missing or weak control by operating at a level of precision that would catch a material misstatement the primary control would have caught.
A compilation report states that the accountant compiled financial statements from management's information and expresses no opinion, conclusion, or any form of assurance on them.
Complementary user entity controls are controls a service organization assumes its customers run, such as reviewing output reports, for the service organization's own controls to work as described.
A component auditor audits the financial information of one component, such as a subsidiary or branch, for a group audit. The group engagement team directs, supervises and evaluates that work.
The conceptual framework is the AICPA Code's three-step approach for ethics and independence: identify threats, evaluate their significance, and apply safeguards, or decline the work if none suffice.
An unconditional contribution is recognized when promised, while a conditional one, with a barrier and a right of return or release, is recognized only when the barrier is overcome under ASC 958-605.
Confidentiality is the duty of a member not to disclose confidential client information without the client's consent, except in situations the AICPA Code allows, such as a subpoena or peer review.
A confirmation exception is a reply that disagrees with the recorded amount or terms. The auditor investigates each one to decide whether it is a misstatement, a timing difference or an unreliable response.
A conflict of interest in public accounting exists when a service, relationship or interest could threaten objectivity or loyalty, and the AICPA Code calls for identifying, evaluating, and where needed disclosing it and getting consent.
Consolidated statements present a parent and its controlled subsidiaries as one entity, while combined statements aggregate commonly controlled or managed entities that lack a parent-subsidiary relationship.
A contingent fee depends on a finding or result, and the AICPA Code and IRS Circular 230 each restrict such fees in specified situations, including for attest clients and for tax returns.
A contract asset is a right to payment conditioned on something other than time, while a contract liability is an obligation to deliver after payment, both presented net per contract under ASC 606.
Contributed nonfinancial assets, also called gifts in kind, are donated items such as supplies, equipment, property, and services that a nonprofit reports on a separate line of the statement of activities and discloses by category.
Control activities are policies and procedures that help ensure management's directives are carried out, such as authorizations, reconciliations, reviews, and segregation of duties, whether manual or automated.
A control deficiency exists when the design or operation of a control does not let management or employees prevent, or detect and correct, misstatements on a timely basis.
The control environment is the foundation of internal control: the attitudes, awareness and actions of management and those charged with governance about controls and why they matter. The other components rest on it.
Control risk is the risk that a misstatement in an assertion will not be prevented, or detected and corrected timely, by the entity's controls. The auditor assesses it separately from inherent risk.
A cooling-off period is a required wait before a former audit team member can take a key role at an audit client. SEC rules set one year for issuers; the AICPA Code uses threat analysis.
The Corporate Transparency Act created beneficial ownership information reporting to FinCEN, and under FinCEN's August 2026 final rule it now applies only to foreign companies registered to do business in the United States.
The COSO Internal Control Integrated Framework is the widely used US framework for designing and assessing internal control. It has five components and 17 principles.
The cost-to-cost method measures progress on a contract by dividing costs incurred to date by total estimated costs, then applies that percentage to the transaction price to recognize revenue over time.
A CPA is an accountant licensed by a US state board of accountancy after meeting education, examination, experience, and ethics requirements; only licensees may issue audit and review reports in most states.
The CPA Exam is the four-section Uniform CPA Examination: three core sections (FAR, AUD, REG) plus one discipline section (BAR, ISC or TCP), each scored 0 to 99 with 75 required to pass.
CPE is the continuing education that CPAs must complete to keep a license and AICPA membership, with hour totals set by state boards, the AICPA, and GAGAS for government work.
Critical audit matters are issues in a public company audit that were communicated to the audit committee, relate to material accounts or disclosures, and involved especially challenging, subjective, or complex auditor judgment.
The current ratio divides current assets by current liabilities to show whether a business can cover obligations due within a year, and auditors use it to spot liquidity strain and covenant pressure.
Current items are expected to be realized or settled within one year or the operating cycle, whichever is longer, and everything else is noncurrent under ASC 210 and ASC 470.
A cutoff bank statement is a bank statement covering a short period after year end, sent directly to the auditor, used to test reconciling items such as deposits in transit and outstanding checks.
Cutoff testing checks that transactions near period end are recorded in the correct period, usually by examining shipping, receiving and invoice dates for items either side of the balance sheet date.
Cybersecurity risk in an audit is the chance that a breach, ransomware attack or system failure affects financial records, controls, going concern, or disclosures. It is assessed as part of IT and fraud risk.
The date of the auditor's report marks when sufficient appropriate evidence was obtained to support the opinion; it ends the subsequent events search and differs from the report release date.
Days sales outstanding measures the average number of days it takes to collect receivables, and auditors use the trend to test receivable existence, cutoff and the adequacy of the allowance.
The de minimis safe harbor lets a taxpayer deduct low-cost tangible property, up to $5,000 per item with audited financials or $2,500 without, if it follows a written policy and files an annual election.
Long-term debt in covenant violation at the balance sheet date is current unless the lender waives its right to demand repayment for over a year or cure within a grace period is probable.
Debt issuance costs are fees paid to obtain financing, presented as a deduction from the debt's carrying amount and amortized to interest expense over the term using the effective interest method.
The debt-to-equity ratio compares an entity's liabilities, or its interest-bearing debt, with total equity to show how much of the business is financed by creditors rather than owners.
Deferred revenue is a liability for cash received or billed before goods or services are delivered, released to revenue as performance obligations are satisfied under ASC 606.
Deferred tax assets and liabilities capture the future tax effects of temporary differences between book and tax bases, measured at enacted tax rates under ASC 740 and classified as noncurrent.
Deposits in transit are receipts recorded in the books but not yet credited by the bank, and outstanding checks are recorded payments not yet cleared; both are standard bank reconciliation items.
Depreciation allocates the cost of a long-lived tangible asset, less any residual value, to expense over its useful life in a systematic and rational way, using methods such as straight-line or declining balance.
Description criteria are the AICPA's suitable criteria for evaluating management's description of a system or program in SOC engagements: DC 200 for SOC 2, DC 100 for cybersecurity, DC 300 for supply chain.
Detection risk is the risk that the procedures the auditor performs will fail to detect a misstatement that could be material. It is the one component of audit risk the auditor sets directly.
Direct assistance is the use of internal auditors to perform audit procedures under the external auditor's direction, supervision and review, and the external auditor stays responsible for the work and conclusions.
The indirect method reconciles net income to operating cash flow through adjustments, while the direct method reports gross operating receipts and payments; ASC 230 encourages direct but requires a reconciliation either way.
A disclaimer of opinion means the auditor does not express an opinion because evidence could not be obtained and the possible effects on the statements could be both material and pervasive.
Donated services are recognized as contributions by a nonprofit only if they create or enhance a nonfinancial asset, or require specialized skills, are provided by people with those skills, and would otherwise be purchased.
Donor restrictions are limits a donor places on how or when a nonprofit may use a gift, and they determine whether assets are reported as net assets with or without donor restrictions under ASC 958.
Due professional care means planning and performing work with competence, diligence and a questioning mind. It is a general standard in the AICPA Code and a requirement in the auditing standards.
Earnings per share divides income available to common shareholders by weighted-average common shares outstanding, with a diluted figure that assumes options, warrants and convertibles are exercised or converted when that lowers the result.
An effective tax rate reconciliation explains the difference between expected tax at the statutory rate and reported income tax expense, and is a key analytical check on the tax provision.
The element of unpredictability is a deliberate change in the nature, timing or extent of audit procedures from year to year, so management cannot anticipate the testing and conceal misstatement.
An emphasis-of-matter paragraph draws attention to a matter disclosed in the financial statements, while an other-matter paragraph covers a matter not presented there; neither changes the opinion.
An endowment fund is an institutional fund that a not-for-profit invests to support its mission over time, either donor-restricted to preserve principal or board-designated as a quasi-endowment.
Engagement acceptance is the firm's decision to take on a specific engagement after evaluating the client's integrity, the firm's competence, capacity and independence, and whether the preconditions for the engagement are present.
An engagement letter is the written agreement between the firm and the client that sets the engagement's objective, scope, management's responsibilities, reporting, and fees, as AU-C 210 requires for audits.
An engagement quality review is an objective evaluation, performed by a qualified person who is not on the engagement team, of significant judgments made and conclusions reached before the report is released.
An enrolled agent is a federally authorized tax practitioner who passed the IRS Special Enrollment Examination or qualified through IRS experience and may represent taxpayers before the IRS in any state.
Entity-level controls operate across the whole entity rather than on one account or process, such as the control environment, risk assessment, monitoring and the financial close process.
The equity method records an investment at cost adjusted for the investor's share of the investee's earnings and distributions when the investor has significant influence but not control.
An ERISA 401(k) audit is the annual audit of a plan's financial statements by an independent qualified public accountant, required for plans filing as large plans and attached to the Form 5500.
An ERISA 103(a)(3)(C) audit, formerly called a limited-scope audit, lets the administrator instruct the auditor not to audit investment information certified by a qualified institution such as a bank or insurer.
ESG assurance is independent examination or review of environmental, social and governance information, such as greenhouse gas emissions, using suitable criteria under attestation standards or international sustainability assurance standards.
An ESOP is a defined contribution retirement plan designed to invest primarily in employer stock, which can borrow to buy shares and which requires an independent appraisal of stock that is not publicly traded.
Estimated tax payments are quarterly installments of income tax that individuals and corporations make during the year, and an underpayment penalty applies unless required amounts are paid by each installment due date.
An examination is an attestation engagement in which the practitioner gathers enough evidence to give an opinion, with reasonable assurance, on subject matter or an assertion measured against suitable criteria.
Expected misstatement is the amount of error the auditor anticipates in a population, based on prior years and current conditions, and it is one of the inputs that determines sample size.
External confirmation is audit evidence obtained as a direct written response from a third party, on paper or electronically, about a balance, term or transaction, using positive or negative request forms.
The fair value hierarchy ranks inputs as Level 1 (quoted prices in active markets), Level 2 (other observable inputs) or Level 3 (unobservable inputs); a measurement takes the level of its lowest significant input.
The Financial Accounting Standards Board is the independent private-sector body that sets US GAAP for businesses and nonprofits, publishing its standards in the Accounting Standards Codification.
Fiduciary funds account for assets a government holds for others, such as pensions, investment pools, private-purpose trusts, and custodial arrangements, and are excluded from the government-wide financial statements.
FIFO assumes the oldest inventory cost is sold first; LIFO assumes the newest cost is sold first, giving different cost of goods sold and ending inventory when prices change.
A lessee classifies a lease as finance if any of five criteria is met, which front-loads expense, and otherwise as operating, which produces a straight-line lease cost under ASC 842.
The financial close process is the sequence of period-end steps, from subledger cutoff and reconciliations through adjusting entries, consolidation and review, that turns recorded transactions into financial statements.
Financial statement assertions are management's implicit claims in the statements, such as occurrence, existence, completeness, rights and obligations, accuracy, valuation, cutoff, classification and presentation, which auditors use to design tests.
A first-year audit is an initial engagement where the auditor must also obtain evidence that opening balances do not contain material misstatements and that accounting policies were applied consistently.
Floor plan financing is a revolving line a dealer uses to buy vehicles or other inventory, with each unit pledged as collateral and repaid when the unit is sold.
Footing is adding a column of figures to check the total. Cross-footing is adding across rows to check that the horizontal totals agree with the vertical ones.
Foreign currency translation converts a foreign entity's functional-currency statements into the reporting currency using current and average rates, with the resulting adjustment recorded in other comprehensive income rather than net income.
Forensic accounting is the application of accounting, auditing and investigative skills to disputes and suspected wrongdoing, producing findings usable in litigation, arbitration or internal investigations.
Forfeitures are the nonvested employer contributions that remain in a retirement plan when a participant leaves before vesting, and the plan document dictates whether they pay expenses or reduce employer contributions.
Form 5500 is the annual return and report that employee benefit plans file with the DOL, IRS, and PBGC, and for large plans it must include the independent auditor's report on the plan financial statements.
Form W-2 reports employee wages and Form 1099-NEC reports contractor payments; both are due to recipients by January 31, and the threshold for 1099-NEC and most 1099-MISC rose to $2,000 for 2026 payments.
Initial franchise fees are upfront payments from a franchisee; a franchisor assesses which services are distinct under ASC 606 and generally recognizes the franchise license portion over the franchise term.
Fraud examination is a structured process for resolving fraud allegations, from predication through evidence gathering, interviews and reporting, as defined and taught by the Association of Certified Fraud Examiners.
Fraud risk factors are events or conditions that indicate an incentive or pressure to commit fraud, an opportunity to do it, or an attitude that justifies it. They are red flags, not proof of fraud.
The fraud tree is the ACFE's classification of occupational fraud into three branches: asset misappropriation, corruption and financial statement fraud, each divided into specific schemes.
The fraud triangle is a model that says fraud tends to occur when three conditions meet: pressure or incentive, a perceived opportunity, and a rationalization. AU-C 240 builds its fraud risk factors on this idea.
Full-population testing uses data analytics to examine every item in a population rather than a sample, which AU-C 500 recognizes as one way to select items for testing.
An entity's functional currency is the currency of the primary economic environment in which it operates, and it determines whether foreign amounts are translated into the reporting currency or remeasured through earnings.
Functional expense allocation assigns costs to program services, management and general, and fundraising, using a consistent, documented method, with all nonprofits presenting expenses by function and nature.
Fund accounting tracks resources in separate self-balancing funds, each with its own assets, liabilities, and equity, so a government or restricted-purpose organization can show that money was used as the law or donor required.
GASB 54 splits governmental fund balance into nonspendable, restricted, committed, assigned, and unassigned amounts, based on how strongly outside parties or the government constrain its use.
Further audit procedures are the tests of controls and substantive procedures the auditor designs and performs in response to the assessed risks of material misstatement at the assertion level.
GAAS are the AICPA standards for audits of nonissuers, issued as Statements on Auditing Standards and codified in AU-C sections, covering general responsibilities, evidence, and reporting.
GAGAS, published by the GAO as Government Auditing Standards or the Yellow Book, adds requirements on top of GAAS for audits of governments, entities receiving government funds, and single audits.
The Governmental Accounting Standards Board sets accounting and financial reporting standards for US state and local governments, which auditors of governmental entities apply as GAAP alongside the GAAS or GAGAS audit requirements.
GASB Statement 34 created the modern financial reporting model for state and local governments, adding government-wide statements, fund statements, management's discussion and analysis, and required supplementary information.
GASB Statement 87 requires governments to treat most leases as financings of the right to use an underlying asset, recognizing a lease liability and an intangible asset for lessees and a lease receivable for lessors.
The general ledger is the master record of all accounts and posted transactions that supports the trial balance and financial statements, and it is the population for journal entry testing in an audit.
The Global Internal Audit Standards are the IIA's 2024 standards, effective January 9, 2025, organized into five domains and 15 principles and replacing the 2017 International Standards.
Going concern is the assumption that an entity will keep operating and meet its obligations as they come due for a period of one year after the date its financial statements are issued.
Goodwill is tested for impairment at the reporting unit level under ASC 350, comparing fair value with carrying amount, while private companies may elect to amortize goodwill and test only on triggering events.
Government-wide financial statements are the statement of net position and statement of activities that present a state or local government as a whole on the economic resources focus and the full accrual basis.
A governmental audit examines the financial statements of a state or local government under GAAS and, usually, GAGAS, using GASB standards and a reporting model with opinion units for each fund type and major fund.
Gross profit margin is revenue less cost of sales divided by revenue, and an unexplained change from the prior year or from expectation is a classic trigger for testing revenue, cutoff and inventory.
A group audit is an audit of financial statements that include financial information of more than one component, such as consolidated statements. The group engagement partner is responsible for the opinion.
Haphazard selection picks sample items without a structured technique, while trying to avoid conscious bias or predictability, and it is used in nonstatistical sampling only, not statistical sampling.
HOA reserve funds are amounts set aside for future major repairs and replacements of common property, presented as designated or restricted funds and supported by a funding study, with required supplementary information.
Horizontal analysis compares each line item across periods as a dollar and percentage change, while vertical analysis expresses each line as a percentage of a base such as revenue or total assets.
An implicit price concession is a cut in expected revenue when a provider expects to collect less than billed, such as from uninsured patients, lowering net patient service revenue instead of creating bad debt expense.
Income tax basis financial statements follow the rules the entity uses to compute taxable income, a common special purpose framework for partnerships and small businesses that do not need GAAP statements.
Income tax nexus is the connection that lets a state tax a business's net income, and it can arise from physical presence or economic activity, under rules separate from the sales tax standard.
The incremental borrowing rate is the rate a lessee would pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.
Independence for an auditor means independence of mind and independence in appearance. It is required for audits and reviews, and under the AICPA Code it is judged using a conceptual framework.
The independent auditor's report is the signed document in which the auditor states an opinion on the financial statements, with sections for the opinion, basis for opinion, and each party's responsibilities.
Information produced by the entity (IPE) is data or reports the entity generates, such as aging reports, listings or system exports, that the auditor uses as audit evidence. Its completeness and accuracy must be evaluated.
Inherent risk is the susceptibility of an assertion about a class of transactions, account balance or disclosure to a misstatement that could be material before considering any related controls.
Inquiry is an audit procedure that seeks information from knowledgeable people inside or outside the entity, in formal written or informal oral form, and is rarely enough evidence on its own.
Inspection is an audit procedure that examines records or documents, internal or external, in paper, electronic or other form, or physically examines an asset such as inventory or equipment.
Intercompany eliminations remove balances and transactions between entities in a consolidated group so the statements show only dealings with outside parties, including unrealized profit on assets still held within the group.
The interest coverage ratio divides earnings before interest and taxes by interest expense to show how many times operating profit covers financing costs, and lenders often set a minimum in covenants.
Internal audit is an independent, objective function inside an organization that gives the board and management assurance and advice on governance, risk management and control, guided by the IIA's Global Internal Audit Standards.
An internal audit charter is the formal document, approved by the board, that sets out the internal audit function's purpose, authority, responsibility and position in the organization under the IIA's Global Internal Audit Standards.
Internal control over financial reporting is the process that management designs and runs to give reasonable assurance that financial statements are reliable and prepared under the applicable framework.
Inventory observation is the auditor's attendance at the physical inventory count to watch management's procedures, inspect the stock, perform independent test counts and gather cutoff information.
Inventory turnover divides cost of goods sold by average inventory to show how often stock is sold and replaced, and a slowing rate is a common signal of obsolete or overstated inventory.
ISSA 5000 is the IAASB's global standard for assurance engagements on sustainability information, applying to limited or reasonable assurance and effective for periods beginning on or after December 15, 2026.
IT general controls are controls over the IT environment that support the continued, proper operation of applications and data: access, change management, and IT operations.
Journal entry testing is the audit procedure of examining journal entries and other adjustments for evidence of material misstatement due to fraud, required on every audit as a response to management override risk.
Key item testing selects specific items for testing, such as large, unusual or high-risk entries, using judgment; results apply only to the items tested and cannot be projected to the rest of the population.
A lead schedule summarizes the accounts that make up a financial statement line item, agreeing the trial balance to the supporting detail and showing adjustments from prior year to final balance.
A lease liability is the present value of unpaid lease payments over the lease term, discounted at the rate implicit in the lease or the lessee's incremental borrowing rate, recorded under ASC 842.
A legal letter is the auditor's written inquiry to the client's outside counsel about litigation, claims, and assessments, used to evaluate loss contingencies and disclosure.
Level 3 inputs are unobservable inputs, such as management's forecasts, discount rates, or private company multiples, used when little or no market data exists and that require the greatest audit scrutiny.
ASC 480 requires certain freestanding instruments, such as mandatorily redeemable shares and obligations to issue a variable number of shares, to be classified as liabilities rather than equity.
The LIFO reserve is the difference between inventory valued on a current-cost basis such as FIFO and the LIFO carrying amount, used to compare LIFO and non-LIFO entities.
Limited assurance is a level of assurance lower than reasonable assurance, provided in attestation review engagements, where the practitioner reports a conclusion that nothing came to attention indicating a material misstatement.
Long-lived asset impairment under ASC 360 applies when carrying amount of an asset group exceeds its undiscounted cash flows, and the loss equals carrying amount minus fair value.
A loss contingency is an uncertain situation that may result in a loss, accrued if probable and estimable, disclosed if reasonably possible, and generally not recognized if remote under ASC 450.
Inventory measured under FIFO or average cost is written down when net realizable value, selling price less reasonably predictable completion and disposal costs, falls below cost, per ASC 330.
MACRS, the Modified Accelerated Cost Recovery System, is the federal tax depreciation method that assigns property to recovery periods from 3 to 39 years and applies a half-year, mid-quarter or mid-month convention.
The major fund test decides which governmental and enterprise funds get their own columns in fund financial statements: a fund is major when it exceeds 10% of its category and 5% of the combined total.
A management letter is a written communication from the auditor to the client with observations and recommendations, often beyond the required written notice of significant deficiencies and material weaknesses.
Management override of controls is the risk that management bypasses controls that otherwise work, by posting false entries or biasing estimates, and AU-C 240 treats it as present in every audit.
A management representation letter is a written statement from management to the auditor confirming responsibilities, completeness of information and specific matters, and it is required evidence in every audit of financial statements.
A management's specialist is an expert in a field other than accounting or auditing whom the entity engages to help prepare its financial statements, such as an appraiser or actuary.
A material weakness is a deficiency, or combination of deficiencies, in internal control where there is a reasonable possibility that a material misstatement will not be prevented, or detected and corrected on a timely basis.
Materiality is the size of misstatement, individually or in total, that could reasonably change the decisions of users of the financial statements, and it sets the scale for planning and evaluating an audit.
Matters for further consideration (MFCs) are issues reviewers note during a peer review that need evaluation but are not yet findings. They are documented on a form that can be elevated.
Modified accrual is the basis governments use for governmental fund statements, recognizing revenues when measurable and available to pay current liabilities and expenditures when the related liability is incurred, with exceptions.
Monetary unit sampling is a statistical method in which each dollar in a population is a sampling unit, so larger items are more likely to be selected and the sample is weighted by value.
Monitoring and remediation is the SQMS No. 1 component under which a firm checks whether its quality responses work, finds deficiencies, determines root causes and fixes them.
NASBA supports the 55 state boards of accountancy, operates the National Candidate Database and CPA Examination Services for CPA Exam candidates, and runs the National Registry of CPE Sponsors. It does not license CPAs.
Nonprofits report two net asset classes under ASC 958, with donor restrictions and without donor restrictions, based on whether a donor imposed a purpose or time limit on use of the resources.
A net operating loss arises when tax deductions exceed taxable income; losses from tax years after 2017 carry forward indefinitely, generally cannot be carried back, and offset only 80 percent of taxable income.
The net pension liability is the total pension liability less the pension plan's fiduciary net position, which a government employer records on its statement of net position under GASB 68.
The NIST AI Risk Management Framework 1.0, released January 26, 2023, is a voluntary framework for managing AI risks through four functions: Govern, Map, Measure and Manage.
The NIST Cybersecurity Framework is a voluntary framework for managing cybersecurity risk. Version 2.0, released February 26, 2024, organizes outcomes into six functions: Govern, Identify, Protect, Detect, Respond and Recover.
Nonattest services are services a firm provides to an attest client other than audits, reviews and examinations, such as bookkeeping or tax prep. The AICPA Code allows them if specific requirements are met.
A noncontrolling interest is the equity in a consolidated subsidiary held by owners other than the parent, and it is reported within consolidated equity, separate from the parent's equity, with its share of income shown.
A nonissuer is an entity that is not an issuer under the Sarbanes-Oxley Act, so its audit follows AICPA standards (AU-C) rather than PCAOB standards, and AICPA independence rules apply.
Objectivity and integrity are two principles in the AICPA Code. Objectivity is impartiality and freedom from conflicts of interest. Integrity means being honest and candid, without subordinating judgment to others.
Observation is an audit procedure that consists of looking at a process or procedure being performed by others, such as a physical inventory count or the handling of cash receipts.
Omission of substantially all disclosures is a compilation option where management leaves out the notes, and the accountant's report must state that fact and warn that disclosures might influence users.
Other comprehensive income covers gains and losses that GAAP records in equity instead of net income, such as translation adjustments and certain securities items, and it adds to net income to give comprehensive income.
Other information is financial or nonfinancial information in an entity's annual report, other than the financial statements and the auditor's report, which the auditor reads to identify material inconsistencies or misstatements of fact.
Contractors recognize revenue over time using cost-to-cost or other progress measures, then compare revenue earned with billings to report contract assets (underbillings) or contract liabilities (overbillings).
Participant loans let a retirement plan member borrow from their own vested account balance within Internal Revenue Code limits, and they appear on the plan's statements as notes receivable from participants.
A partner's capital account records contributions, allocated income and loss, and distributions for each partner or LLC member, and it often determines liquidation proceeds under the partnership agreement.
A pass-through entity tax is an elective state income tax paid by a partnership or S corporation on its owners' income, which the entity deducts federally under IRS Notice 2020-75.
A patronage dividend is a cooperative's distribution of net earnings to members based on the business each member did with the cooperative, paid in cash or in written allocation notices.
A PBC list, short for provided by client, is the request list of schedules, records and documents the auditor needs from management, with owners and due dates, to complete fieldwork on time.
Auditors of SEC issuers follow PCAOB standards and must be PCAOB-registered, while auditors of nonissuers, such as private companies and most nonprofits, follow AICPA standards and AU-C sections.
Peer review is an independent evaluation of a CPA firm's accounting and auditing practice by another qualified CPA. Firms that audit generally need one every three years under the AICPA program.
Peer review ratings are pass, pass with deficiency(ies) and fail. A pass means the firm's system was suitably designed and complied with. A fail means significant deficiencies show it was not.
Performance materiality is an amount set below overall materiality to lower the chance that uncorrected and undetected misstatements, added together, exceed materiality for the financial statements as a whole.
A performance obligation is a distinct good or service, or a series of distinct goods or services, promised to a customer in a contract, and it is the unit of account for revenue recognition.
The plan sponsor is the employer or organization that establishes and maintains an employee benefit plan; it is distinct from the plan administrator and trustee, though one party often holds several roles.
Points of focus are implementation guidance attached to each trust services criterion, describing characteristics that may help management design and evaluate controls, but they are not requirements that must each be addressed.
The predecessor auditor is the one being replaced and the successor is the incoming auditor, who communicates with the predecessor before accepting an engagement and may review its workpapers with permission.
Prepaid expenses are payments made in advance for goods or services, such as insurance or rent, recorded as assets and expensed over the period of benefit.
Principal versus agent analysis decides whether an entity reports revenue gross as the party that controls the specified good or service before transfer, or net as an arranger earning a fee or commission.
Professional skepticism is an attitude that includes a questioning mind, alertness to conditions that may indicate misstatement, and a critical assessment of audit evidence, kept up throughout the whole engagement.
Prohibited transactions are dealings between a retirement plan and a party in interest, such as loans, sales, or services, that ERISA and the Internal Revenue Code ban unless an exemption applies.
Projected misstatement is the auditor's estimate of misstatement in a population, found by extrapolating the misstatements identified in a sample to the whole population from which the sample was drawn.
A proof of cash reconciles bank and book cash for beginning balance, receipts, disbursements and ending balance across a period, to detect unrecorded items, timing games and misappropriation.
A PTIN is the IRS number that anyone paid to prepare all or substantially all of a federal tax return must obtain, renew each year, and put on the returns they prepare.
Public Law 86-272 bars a state from taxing net income of a business whose only in-state activity is soliciting orders for tangible goods that are approved and shipped from outside the state.
Purchase price allocation assigns the consideration transferred in an acquisition to identifiable assets and liabilities at fair value, with any remainder recorded as goodwill under ASC 805.
A QDIA is a default investment, such as a target date fund, balanced fund, or managed account, that gives a plan fiduciary relief from liability for losses when a participant does not direct their investments.
A qualified opinion says the statements are fairly presented except for one matter that is material but not pervasive, whether a misstatement or a lack of evidence.
The quick ratio, also called the acid-test ratio, compares cash, marketable securities and net receivables with current liabilities, leaving out inventory and prepaids to test liquidity without relying on sales of stock.
Random selection chooses sample items so that every item in the population has a known chance of selection, typically using a random number generator or random number table.
Utilization measures billable hours as a share of available hours, and realization measures how much of the standard value of time worked is ultimately billed or collected; both guide firm profitability.
Reasonable assurance is a high but not absolute level of assurance, provided in audits and attestation examinations, expressed as an opinion that subject matter is free of material misstatement.
Recalculation is an audit procedure that checks the mathematical accuracy of documents or records, either manually or electronically, such as depreciation, interest, accruals or invoice extensions.
Records retention is the period a firm must keep audit documentation and client files, which is at least five years from the report release date for a nonissuer audit under AU-C 230.
ASC 850 requires disclosure of the relationship, a description of transactions, dollar amounts, and balances due for material related party transactions, except compensation and eliminated intercompany items.
Related party procedures are the audit steps to identify related parties, find related party transactions, evaluate their business purpose and test whether they are properly accounted for and disclosed under GAAP.
A relevant assertion is an assertion about a class of transactions, account balance or disclosure for which there is an identified risk of material misstatement, meaning a reasonable possibility of one.
Reperformance is the auditor's independent execution of procedures or controls that were originally performed as part of the entity's internal control, to check that they were done properly.
The responsible party is the person or persons responsible for the subject matter of an attestation engagement, usually management, who must accept responsibility for it and provide written representations to the practitioner.
A restatement corrects a material error in previously issued financial statements and is labeled as such, while an immaterial error may be fixed by revising comparatives without a formal restatement.
Retainage is the part of each progress billing that an owner withholds until the work is finished or accepted, creating a receivable or contract asset for the contractor and a payable for the owner.
Retrospective application restates prior-period financial statements as if a new accounting principle had always been used, with the cumulative effect on earlier periods recorded as an adjustment to opening retained earnings.
AU-C 240 presumes that improper revenue recognition is a fraud risk in every audit. The auditor may rebut the presumption for specific revenue streams only with documented reasons.
A reversing entry is an optional journal entry made at the start of a new period that flips a prior accrual so the later actual transaction can be recorded normally without double counting.
A review report states that the accountant is not aware of any material modifications needed for the financial statements to conform with the framework, giving limited assurance based mainly on inquiry and analytics.
A right-of-use asset represents a lessee's right to use an underlying asset for the lease term, recorded at commencement under ASC 842 at the lease liability adjusted for prepaid rent, initial direct costs and incentives.
Risk assessment procedures are the audit procedures used to understand the entity and its environment, internal control and applicable framework, in order to identify and assess the risks of material misstatement.
The risk of material misstatement is the risk that financial statements are materially misstated before the audit. It exists at the statement and assertion levels and has inherent risk and control risk components.
A rollforward reconciles an account from its opening balance through additions, disposals and adjustments to the closing balance, and links the movements to the general ledger and supporting evidence.
Sales tax nexus is a connection to a state, through physical presence or economic activity, that obliges a seller to register, collect, and remit sales tax there, and unrecorded exposure is a loss contingency.
Sampling risk is the risk that the auditor's conclusion based on a sample would differ from the conclusion reached if the same procedure were applied to the entire population.
A subscription-based information technology arrangement is a contract giving a government the right to use a vendor's IT software, reported under GASB 96 as a subscription asset and a subscription liability.
Schedule K-1 reports an owner's or beneficiary's share of income, deductions, and credits from a partnership, S corporation, or trust, and feeds the owner's return and tax basis tracking.
The schedule of findings and questioned costs is the single audit report section that summarizes auditor results and lists financial statement findings and federal award findings, including questioned costs, as 2 CFR 200.515 requires.
A search for unrecorded liabilities is a set of audit procedures aimed at finding obligations that existed at year end but are missing from the accounts payable and accrued liabilities balances.
The SEC is the federal regulator that requires public companies to file audited financial statements, sets auditor independence rules for issuers, and oversees the PCAOB.
Section 163(j) limits the business interest deduction to business interest income plus 30 percent of adjusted taxable income, carrying disallowed interest forward, with an exemption for small businesses under the gross receipts test.
Section 174 covers research and experimental expenditures, and for tax years beginning after 2024 section 174A allows domestic costs to be deducted immediately while foreign research costs remain amortized over 15 years.
Section 179 lets a business elect to expense qualifying property in the year placed in service, up to $2,560,000 for 2026, reduced once property placed in service exceeds $4,090,000.
The section 199A deduction lets owners of pass-through businesses deduct up to 20 percent of qualified business income, subject to limits, and the 2025 legislation removed its scheduled expiration after 2025.
The section 382 limitation caps annual use of a corporation's pre-change losses after an ownership change of more than 50 percentage points over three years, at the company's value times a long-term tax-exempt rate.
Section 7216 of the Internal Revenue Code makes it a misdemeanor for a tax return preparer to knowingly or recklessly disclose or use return information beyond preparing the return, with limited exceptions.
The SEFA, or schedule of expenditures of federal awards, is the management-prepared schedule listing each federal program's expenditures, which is audited in relation to the financial statements in a single audit.
Segment reporting under ASC 280 applies to public entities and requires disclosure of operating segments identified through the chief operating decision maker's reporting, including significant segment expenses after ASU 2023-07.
Segregation of duties splits authorizing, recording and custody of assets among different people so that no one person can commit and hide an error or fraud.
A service auditor is the practitioner who reports on controls at a service organization, such as in a SOC 1 or SOC 2 report, and must be independent of the service organization.
A service organization is a third party that provides services to user entities that are part of those entities' information systems relevant to financial reporting, such as payroll, hosting or custody.
The short-term lease exemption lets a lessee skip balance sheet recognition for leases of twelve months or less with no purchase option reasonably certain to be exercised, expensing payments straight line.
A significant deficiency is a deficiency or combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit the attention of those charged with governance.
A significant risk is an identified risk of material misstatement that is close to the upper end of the spectrum of inherent risk, so it needs special audit consideration and a tailored response.
A single audit is the combined financial statement and federal compliance audit required under 2 CFR 200 Subpart F when a nonfederal entity expends $1,000,000 or more in federal awards in a fiscal year.
A SOC 1 report is a service auditor's report on controls at a service organization that are relevant to its customers' internal control over financial reporting.
A SOC 2 report is a service auditor's report on controls at a service organization relevant to security, availability, processing integrity, confidentiality or privacy. It is not a report on financial reporting controls.
A SOC 3 report is a general-use report from an examination against the trust services criteria, giving the opinion and management's assertion without the detailed description or test results found in a SOC 2.
A SOC examination is an attestation report on a service organization: SOC 1 covers controls relevant to customers' financial reporting, while SOC 2 and SOC 3 cover trust services criteria.
SOC for Cybersecurity is an AICPA examination of an entity's cybersecurity risk management program, reporting on management's description against DC 100 and on the effectiveness of controls against suitable control criteria.
SOC for Supply Chain is an AICPA examination report for entities that produce, manufacture or distribute goods, covering controls over the production system against description criteria in DC 300 and the trust services criteria.
The software development life cycle is the set of phases through which a new system or major change is requested, built, tested, approved and released, and auditors test it as part of program development controls.
A special purpose framework is a financial reporting basis other than GAAP, such as cash, tax, or regulatory basis, designed to meet the needs of specific users and audited under AU-C 800.
SQMS No. 1 is the AICPA standard requiring a CPA firm to design, implement and operate a risk-based system of quality management for its accounting and auditing practice. It replaced SQCS No. 8.
State apportionment divides a multistate business's taxable income among the states where it has nexus, usually using a formula weighted toward sales, so the sourcing of revenue drives how much tax each state assesses.
The statement of cash flows reports a period's cash receipts and payments in operating, investing and financing activities, and reconciles the change in cash, cash equivalents and restricted cash.
The statement of changes in equity shows how each equity component moved during the period, including net income, other comprehensive income, share transactions and dividends, and ties opening to closing equity.
The statement of net assets available for benefits is the employee benefit plan's balance sheet, reporting investments at fair value plus receivables, less liabilities, to show assets available to pay participants.
Stock-based compensation is measured at grant date fair value and recognized as expense over the requisite service period, with separate treatment for service, performance, and market conditions.
Stratification divides a population into subpopulations of items with similar characteristics, such as dollar size, so that the sample can be targeted and the sample size can often be reduced.
A subpoena or records request asks a firm to produce client information, and the AICPA Code allows disclosure for a valid, enforceable subpoena while tax return information has separate legal limits.
Subsequent disbursements testing examines payments made after year end to see whether they relate to liabilities that existed at the balance sheet date but were not recorded.
Subsequent discovery of facts covers what the auditor must do when facts that existed at the report date become known only after the report was released and might have changed the opinion.
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are issued or available to be issued, and they may require adjustment or disclosure in those statements.
A subservice organization is a third party used by a service organization to perform some of the services provided to user entities. SOC reports treat it by the carve-out or inclusive method.
A subsidiary ledger holds the detailed records behind one general ledger control account, such as customer balances for receivables, and its total must agree to the control account at each period end.
Substantive procedures are audit tests designed to detect material misstatements in account balances, transactions and disclosures, made up of tests of details and substantive analytical procedures.
Sufficient appropriate audit evidence is enough evidence, in both quantity and quality, to reduce audit risk to an acceptably low level and support the auditor's opinion on the financial statements.
Suitable criteria are benchmarks used to measure or evaluate subject matter in an attestation engagement, with characteristics of relevance, objectivity, measurability and completeness, and available to intended users.
Supplementary information is information presented outside the basic financial statements, such as consolidating schedules, on which the auditor may report whether it is fairly stated in relation to the statements as a whole.
A system of quality management is a firm's set of policies and procedures built around quality objectives, assessed quality risks and responses. SQMS No. 1 organizes it into eight components.
Tax return preparer penalties under section 6694 apply when a preparer takes an unreasonable position or acts willfully or recklessly, with minimums of $1,000 and $5,000 respectively or a share of income from the return.
A test of details is a substantive procedure that examines individual transactions, balances or disclosures, for example by vouching, confirming, recalculating or inspecting, to find specific misstatements in a financial statement assertion.
Tests of controls are audit procedures that evaluate whether a control operated effectively throughout the period, and they are required when the auditor plans to rely on controls or substantive tests alone cannot suffice.
Those charged with governance are the people or bodies, such as a board or audit committee, responsible for overseeing strategic direction and financial reporting, and with whom the auditor must communicate under AU-C 260.
Threats are circumstances that could compromise compliance with the AICPA Code, and safeguards are actions that reduce them to an acceptable level. If none works, the member declines or stops.
The Three Lines Model is the IIA's 2020 governance model that assigns management the first and second line roles, internal audit the third line role of independent assurance, and a governing body accountability.
Tick marks are standardized symbols that auditors place beside figures in working papers to show which procedure was performed, such as agreed to invoice, recomputed or footed, with a legend that explains each.
Tolerable misstatement is the monetary amount the auditor sets for sampling so that the actual misstatement in a population is unlikely to exceed it, and it is derived from performance materiality.
Tone at the top is the example management and the board set about integrity, ethics and accountability. It shapes the control environment more than written policies do.
Tracing follows a transaction from its source document forward into the accounting records and financial statements, mainly to test for omissions and to support the completeness assertion.
The transaction price is the amount of consideration an entity expects to be entitled to for transferring promised goods or services, adjusted for variable amounts, financing, noncash items, and customer payments.
Treasury stock is a company's own shares that it has issued and then reacquired but not retired, and it is shown as a deduction from equity rather than as an asset.
A trial balance lists every general ledger account with its debit or credit balance at a date, proving total debits equal total credits and providing the starting point for financial statements.
A troubled debt restructuring occurs when a creditor grants a concession to a debtor in financial difficulty, and debtors still follow ASC 470-60 even though creditors' TDR accounting was removed by ASU 2022-02.
The trust services criteria are the AICPA's control criteria for security, availability, processing integrity, confidentiality and privacy, used to evaluate controls in SOC 2 and SOC 3 examinations of service organizations.
A Type 1 SOC report covers the design of controls at a point in time. A Type 2 report also tests operating effectiveness over a period, which a user auditor generally needs for reliance.
In a single audit, Type A programs exceed a size threshold based on total federal awards expended and all others are Type B; the auditor selects major programs from both using a risk-based approach.
An uncertain tax position is a tax return position that must meet a more-likely-than-not threshold on technical merits before benefit is recognized, measured at the largest amount over 50% likely to be realized.
Uncorrected misstatements are errors found by the auditor that management chose not to adjust. They are accumulated, often on a schedule called the SUM, and evaluated together against materiality.
An underwater endowment fund is a donor-restricted fund whose fair value is below the original gift amount or the amount that donor terms or law require to be maintained.
The Uniform Guidance is OMB's consolidated rulebook in 2 CFR Part 200 for administering federal awards, covering allowable costs, procurement and subrecipient oversight, and the audit requirements of Subpart F.
An unmodified opinion states that the financial statements present fairly, in all material respects, the entity's position and results in accordance with the applicable framework, and is the opinion given when no modification is needed.
Unrelated business income tax applies to income an exempt organization earns from a regularly carried on trade or business not substantially related to its exempt purpose, reported on Form 990-T.
UPMIFA, the Uniform Prudent Management of Institutional Funds Act, is model state law approved in 2006 that governs how nonprofits invest and spend donor-restricted endowment funds.
A user access review is a periodic check that each user's system permissions are still appropriate for their job. It is a core logical-access control and a common ITGC test.
A valuation allowance reduces a deferred tax asset to the amount more likely than not to be realized, based on positive and negative evidence about future taxable income.
Variable consideration is any part of the contract price that can change, such as rebates, discounts, bonuses, or returns, estimated and constrained so a significant reversal of revenue is not probable.
A variable interest entity is a legal entity whose control is not determined by voting rights, and its primary beneficiary, the party with power and economics, must consolidate it under ASC 810.
Vintage analysis tracks losses by origination cohort over time, while roll-rate analysis measures how balances migrate between delinquency buckets, two common ways to estimate expected credit losses under ASC 326.
Vouching is working backward from a recorded amount in the accounting records to the original supporting document, mainly to test for overstatement or whether a recorded item actually occurred.
A walkthrough follows a single transaction from initiation through processing to recording in the financial statements, to confirm the auditor's understanding of a process and whether its controls are in place.
A whistleblower program is a channel for employees and others to report suspected fraud or misconduct, usually confidentially. Auditors ask about it because it is a visible anti-fraud control.
A WIP schedule is the contractor's job-by-job report of contract price, estimated and actual costs, percent complete, revenue earned, and billings, from which over and under billings and expected gross profit are derived.
Worker classification is the determination of whether a person is an employee or an independent contractor, which drives payroll taxes, withholding, benefits and whether Form W-2 or Form 1099-NEC is issued.
Working capital is current assets minus current liabilities, a liquidity measure that auditors use in analytical procedures, going concern evaluation, and loan covenant testing, with contract definitions often differing.
A working paper is a page or file in the audit documentation that records one piece of work: its purpose, source, procedure, results and the conclusion, with the preparer and reviewer identified.
Workpaper ownership concerns who holds rights to a firm's audit documentation, which professional standards treat as the auditor's property, while clients keep rights to their own records under the Code and state law.
