WERABE UNIVERSITY

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FAINANCE

MSC PROGRAM

Course Title: Investment Decisions and Portfolio management

Curse Code : AcFn 841

Group-6 Assignment on article review

STUDENT NAME:-……………………………..ID NO

1. Sefa seid ………………………..……….…..………MScAc/021/13

2. Shakir Aliya ……………………….………………. MScAc/022/13
3. Sherefa endris …………………………..…………..MScAc/024/13

SUBMITED TO: - Dr. Nag. ……………….(PHD)

Submission date…..February 22/2022
Werabe

Ethiopia
Accounting—the recording, classifying,
and summarizing of economic events in a
logical manner for the purpose of pro -
viding financial information for decision
making
Assurance service—an independent pro -
fessional service that improves the quality
of information for decision makers
Attestation service—a type of assurance
service in which the CPA firm issues a
report about the reliability of an assertion
that is the responsibility of another party
Audit of historical financial statements—
a form of attestation service in which the
auditor issues a written report stating
whether the financial statements are in
material conformity with accounting
standards
Audit report—the communication of
audit findings to users
Auditing—the accumulation and evalu -
ation of evidence about information to
determine and report on the degree of
correspondence between the information
and established criteria
Certified public accountant—a person
who has met state regulatory requirements,
including passing the Uniform CPA
Examination, and has thus been certified;
a CPA may have as his or her primary
responsibility the performance of the
audit function on published historical
financial statements of commercial and
noncommercial financial entities
Compliance audit—(1) a review of an
organization’s financial records performed
to determine whether the organization is following specific
procedures, rules, or
Internal revenue agents—auditors who
work for the Internal Revenue Service
(IRS) and conduct examinations of tax -
payers’ returns
Operational audit—a review of any part
of an organization’s operating procedures
and methods for the purpose of evalu -
ating efficiency and effectiveness
Review of historical financial state -
ments—a form of attestation in which a
CPA firm issues a written report that
regulations set by some higher authority;
(2) an audit performed to determine
whether an entity that receives financial
assistance from the federal government
has complied with specific laws and
regulations
Evidence—any information used by the
auditor to determine whether the infor -
mation being audited is stated in accord -
ance with established criteria
Financial statement audit—an audit
con ducted to determine whether the
overall financial statements of an entity
are stated in accordance with specified
criteria (usually U.S. or international
accounting standards)
Government accountability office audi -
tor—an auditor working for the U.S.
Government Accountability Office (GAO);
the GAO reports to and is responsible
solely to Congress
Independent auditors—certified public
accountants or accounting firms that
perform audits of commercial and non -
commercial financial entities
Information risk—the risk that informa -
tion upon which a business decision is
made is inaccurate
Internal auditors—auditors employed by
a company to audit for the company’s
board of directors and management
Internal control over financial reporting—
an engagement in which the auditor reports
on the effectiveness of internal control
over financial reporting; such reports are
required for accelerated filer public
companies under Section 404 of the
Sarbanes–Oxley Act provides less assurance than an audit as
to whether the financial statements are
in material conformity with accounting
standards
Sarbanes–Oxley Act—a federal securities
law passed in 2002 that provides for
additional regulation of public companies
and their auditors; the Act established the
Public Company Accounting Oversight
Board and also requires auditors to audit
the effective ness of internal control over
financial reporting
Adverse opinion—a report issued when
the auditor believes the financial state -
ments are so materially misstated or
misleading as a whole that they do not
present fairly the entity’s financial posi -
tion or the results of its operations and
cash flows in conformity with GAAP
Combined report on financial statements
and internal control over financial
reporting—audit report on the financial
statements and the effectiveness of internal
control over financial reporting required
for larger public companies under Section
404 of the Sarbanes–Oxley Act
Disclaimer of opinion—a report issued
when the auditor is not able to become
satisfied that the overall financial state -
ments are fairly presented or the auditor
is not independent
Material misstatement—a misstatement
in the financial statements, knowledge of
which would affect a decision of a reason -
able user of the statements
Qualified opinion—a report issued when
the auditor believes that the overall financial
statements are fairly stated but that either
the scope of the audit was limited or the
financial data indicated a failure to follow
GAAP
Separate report on internal control over
financial reporting—audit report on the
effectiveness of internal control over
financial reporting required for public
companies under Section 404 of the
Sarbanes–Oxley Act that cross-references
the separate audit report on the financial
statements
Standard unqualified audit report—the
report a CPA issues when all auditing
conditions have been met, no significant
misstatements have been discovered and
left uncorrected, and it is the auditor’s
opinion that the financial statements are
fairly stated in accordance with GAAP
Unqualified audit report with explanatory
paragraph or modified wording—an
unquali fied report in which the financial
statements are fairly presented, but the
auditor believes it is important, or is
required, to provide additional infor -
mation
Acceptable audit risk—a measure of how
willing the auditor is to accept that the
financial statements may be materially
misstated after the audit is completed and
an unqualified opinion has been issued
Audit strategy—overall approach to the
audit that considers the nature of the
client, risk of significant misstatements,
and other factors such as the number of
client locations and past effectiveness of
client controls
Budgets—written records of the client’s
expectations for the period; a comparison
of budgets with actual results may indicate
whether or not misstatements are likely
Client business risk—the risk that the
client will fail to achieve its objectives
related to (1) reliability of financial
reporting, (2) effectiveness and efficiency
of operations, and (3) compliance with
laws and regulations
Corporate minutes—the official record
of the meetings of a corporation’s board
of directors and stockholders, in which
corof dividends and the approval of con -
tracts, are documented
Engagement letter—an agreement between
the CPA firm and the client as to the
terms of the engagement for the conduct
of the audit and related services
Inherent risk—a measure of the auditor’s
assessment of the likelihood that there are
material misstatements in a segment before
considering the effectiveness of internal
control
Initial audit planning—involves deciding
whether to accept or continue doing the
audit for the client, identifying the client’s
reasons for the audit, obtaining an engage -
ment letter, and developing an audit strategy
Related party—affiliated company, prin -
cipal owner of the client company, or any
other party with which the client deals,
where one of the parties can influence the
management or operating policies of the
other
Related party transaction—any transac -
tion between the client and a related partyporate issues, such
as the declaration
Acceptable audit risk—a measure of how
willing the auditor is to accept that the
financial statements may be materially
misstated after the audit is completed and
an unqualified audit opinion has been
issued; see also audit assurance
Allocation of the preliminary judgment
about materiality—the process of assign -
ing to each balance sheet account the mis -
statement amount considered to be material
for that account based on the auditor’s
preliminary judgment
Audit assurance—a complement to
acceptable audit risk; an acceptable audit
risk of 2 percent is the same as audit
assurance of 98 percent; also called overall
assurance and level of assurance
Audit risk model—a formal model re -
flecting the relationships between accept -
able audit risk (AAR), inherent risk (IR),
control risk (CR), and planned detection
risk (PDR); PDR = AAR/(IR × CR)
Control risk—a measure of the auditor’s
assessment of the likelihood that mis -
statements exceeding a tolerable amount
in a segment will not be prevented or
detected by the client’s internal controls
Materiality—the magnitude of an omis -
sion or misstatement of accounting infor -
mation that, in the light of surrounding
circumstances, makes it probable that the
judgment of a reasonable person relying
on the information would have been
changed or influenced by the omission or
misstatement
Planned detection risk—a measure of the
risk that audit evidence for a segment will
fail to detect misstatements exceeding a
tolerable amount, should such misstate -
ments exist; PDR = AAR/ (IR × CR)
Preliminary judgment about materiality—
the maximum amount by which the
auditor believes that the statements
could be misstated and still not affect the
decisions of reasonable users; used in
audit planning
Direct projection estimate of misstate -
ment—estimate of likely misstatement
in a population based on a sample, ex -
cluding sampling risk, and calculated as
net misstatements in the sample, divided
by the total sampled, multiplied by the
total recorded population value
Engagement risk—the risk that the auditor
or audit firm will suffer harm because of
a client relationship, even though the audit
report rendered for the client was correct
Inherent risk—a measure of the auditor’s
assessment of the likelihood that there
are material misstatements in a segment
before considering the effectiveness of
internal control
Known misstatements—specific misstate -
ments in a class of transactions or account
balance identified during the audit
Likely misstatements—misstatements that
arise from either differences between
management’s and the auditor’s judgment
about estimates of account balances or
from projections of misstatements based
on the auditor’s test of a sample from a
population
Revised judgment about materiality—
a change in the auditor’s preliminary
judgment made when the auditor deter -
mines that the preliminary judgment was
too large or too small
Risk—the acceptance by auditors that
there is some level of uncertainty in per -
forming the audit function
Risk of material misstatement—the com -
bination of inherent risk and control risk
(IR × CR)
Sampling error—results because the
auditor has sampled only a portion of the
population
Tolerable misstatement—the materiality
allocated to any given account balance;
used in audit planning
REVIEW