Auditor Responsibilities and Materiality

An auditor's responsibility to identify and assess the risks of material misstatement in financial statements due to fraud.

The dollar value or amount of an error or misstatement that would likely influence a reasonable user's decisions about the information.

A condition in a loan agreement between a debtor and creditor that the borrower must meet to avoid penalties.

A situation where a small misstatement becomes material due to qualitative factors, such as the impact on loan covenants.

The auditor's responsibility to obtain sufficient appropriate audit evidence regarding the assessed risk of material misstatement due to fraud.

The difference between what management and users expect from an audit and what auditors are actually capable of giving.

A situation where two or more parties work together to do something wrong, often involving fraud or unethical behavior.

The act of creating a false signature, document, or authorization to deceive or gain unauthorized access to something.

A framework for understanding the factors that contribute to fraud: pressure, opportunity, and rationalization.

The auditor's duty to use reasonable care in finding errors that would significantly affect the financial statements.

The auditor's duty to report material errors to management or those in charge.

The auditor's duty to use care to find illegal acts that could have a direct and material impact on the financial statements.

Violations of laws that directly affect the financial statements, such as tax fraud or accounting law violations.

Violations of laws that do not directly affect the financial statements but may have an indirect material impact, such as environmental or labor law violations.

The process of using accounting methods to achieve specific earnings targets or influence financial results, which may or may not be ethical.

The practice of using accounting to smooth out earnings fluctuations over time, making them appear more stable and predictable.

The use of accounting techniques to manipulate financial reports in ways that mislead investors about a company's performance or health.

The act of accelerating sales from future periods into the current period to increase revenue and earnings, which can be ethically problematic and unsustainable.

The process of recognizing and reporting revenue that has not been earned yet or may never be earned, a potential area for earnings management.

The ability of a company to demonstrate that its reported earnings reflect the actual performance of its core business activities.

Being open and honest with information, providing clear financial statements without hiding important details.

A type of restatement of financial statements that corrects an error that was immaterial to the prior period but could materially misstate the current period financials.

A type of restatement of financial statements that corrects an error that was material to the prior period financials, requiring the reissuance of prior period statements.

A restatement where the company quietly corrects a prior period error without significant attention, potentially raising ethical concerns if done with intent to mislead.

A provision that allows companies to recover compensation from executives if financial statements are later restated due to errors or misconduct.

A style of leadership that focuses on short-term goals, structure, and top-down direction.

A style of leadership that emphasizes values, openness, and trust, leading to a more ethical environment.

A theory that suggests individuals learn by observing and imitating the behavior of role models.

A style of leadership that focuses on the needs, growth, and well-being of the organization, employees, and community.

The liability of an auditor for failing to exercise the required amount of care, potentially leading to financial losses for clients or third parties.

The liability of an auditor for intentionally making false statements or omissions in an audit, often with the intent to deceive.

A legal defense used in negligence cases where the plaintiff's own carelessness contributed to their injury or loss.

A rule of liability where multiple defendants are held responsible for all damages, regardless of their individual contribution to the harm.

A legal defense that reduces an auditor's liability based on the extent to which the plaintiff contributed to their own losses.

A rule of liability where each defendant is responsible for their proportion of the total harm caused, based on their contribution.

A legal theory that allows investors to sue companies and their auditors for false statements in registration materials, even without proving fraud or negligence.

A legal theory that allows investors to sue companies and their auditors for fraudulent conduct in securities transactions.

A legal theory that assumes investors rely on the market price of a security, which reflects publicly available information, including audited financial statements.

A federal law that prohibits bribery of foreign government officials and requires public companies to maintain internal controls over financial reporting.

Small payments made to foreign officials to facilitate routine government actions, which are allowed under the FCPA.