Accounting Estimate: Appropriateness (Of Audit Evidence)

Key Terms Definitions
An approximation of a monetary amount in the

absence of a precise means of measurement. This term
Accounting estimate is used for an amount measured at fair value where
there is estimation uncertainty, as well as for other
amounts that require estimation. Where this section
addresses only accounting estimates involving
measurement at fair value, the term fair value
accounting estimates is used.
Evaluations of financial information through analysis of
plausible relationships among both financial and
nonfinancial data. Analytical procedures also
Analytical procedures encompass such investigation, as is necessary, of
identified fluctuations or relationships that are
inconsistent with other relevant information or that
differ from expected values by a significant amount.
The measure of the quality of audit evidence; that is,
its relevance and its reliability in providing support for
Appropriateness (of audit evidence) the conclusions on which the auditor’s opinion is
based.
Arm’s length transaction. A transaction conducted on such terms and conditions
between a willing buyer and a willing seller who are
unrelated and are acting independently of each other
and pursuing their own best interests.
Assertions. Representations by management, explicit or otherwise,
that are embodied in the financial statements, as used
by the auditor to consider the different types of
potential misstatements that may occur.
Audit evidence Information used by the auditor in arriving at the
conclusions on which the auditor’s opinion is based.
Audit evidence includes both information contained in
the accounting records underlying the financial
statements and other information:
1. Sufficiency of audit evidence is the measure of the
quantity of audit evidence. The quantity of the audit
evidence needed is affected by the auditor’s
assessment of the risks of material misstatement and
also by the quality of such audit evidence.
2. Appropriateness of audit evidence is the measure of
the quality of audit evidence; that is, its relevance and
its reliability in providing support for the conclusions
on which the auditor’s opinion is based.
Control risk. The risk that a misstatement that could occur in an
assertion about a class of transaction, account balance,
or disclosure and that could be material, either
individually or when aggregated with other
misstatements, will not be prevented, or detected and
corrected, on a timely basis by the entity’s internal
control.
Detection risk The risk that the procedures performed by the auditor
to reduce audit risk to an acceptably low level will not
detect a misstatement that exists and that could be
material, either individually or when aggregated with
other misstatements.
Exception (to external confirmation request) A response that indicates a difference between
information requested to be confirmed, or contained
in the entity’s records, and information provided by
the confirming party.
External confirmation Audit evidence obtained as a direct written response to
the auditor from a third party (the confirming party),
either in paper form or by electronic or other medium
(for example, through the auditor’s direct access to
information held by a third party).
1. The auditor’s direct access to information held by
the confirming party may meet the definition of an
external confirmation when for example, the auditor is
provided by the confirming party with the electronic
access codes or information necessary to access a
secure website where data that addresses the subject
matter of the confirmation is held.
2. The auditor’s access to information held by the
confirming party may also be facilitated by a third
party provider. Where access codes or information
necessary to access data held by a third party is
provided to the auditor by management (i.e., not by
the confirming party), evidence obtained by the
auditor from access to such information does not meet
the definition of an external confirmation.

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Key Terms Definitions

An approximation of a monetary amount in the

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