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Glossary

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Find additional accounting terms at AIS Auditing Dictionary of Terms.

Accounting and review services
 

Accounting and review services are governed by official pronouncements covering compilation and review engagements. Compilation is presenting in the form of financial statements information that is the representation of management (owners) without expressing assurance. Review is inquiry and analytical procedures to provide the accountant a basis for expressing limited assurance that there are no material modifications that should be made to the statements for them to be in conformity with U.S. generally accepted accounting principles.

Accounting records
 

Accounting records are the records of initial accounting entries and supporting records, such as checks and records of electronic fund transfers; invoices; contracts; the general and subsidiary ledgers; journal entries and other adjustments to the financial statements that are not reflected in journal entries; and records, such as work sheets and spreadsheets, supporting cost allocations, computations, reconciliations, and disclosures.

Accounts receivable
 

Debts due from customers from sales of products and services reported as a current asset.

Advisory services

Advisory services are a consulting service in which the CPA develops the findings, conclusions, and recommendations presented for client decision-making. This differs from attestation, where the CPA expresses a conclusion about a written assertion of another.

AICPA
 

American Institute of Certified Public Accountants. The professional organization of CPAs in the U.S. It is a private organization of CPAs, not an arm of the government. Each state issues CPA certificates, not the AICPA. Since each state makes its own laws, each state could prepare and grade their own CPA examination. However, each state uses the uniform CPA exam prepared and graded by the AICPA.

Assertion

Management asserts financial statements are correct with regard to existence or occurrence of assets, liabilities or transactions, completeness of information in the financial statements, rights and obligations at a point in time, appropriate valuation or allocation, presentation, and disclosure.

Compile (compilation)
 

A compilation is presenting in the form of financial statements information that is the representation of management without expressing assurance. Compilation of a financial projection is assembling prospective statements based on assumptions of a responsible party, considering appropriateness of presentation, and issuing a compilation report. No assurance is provided on the statements or underlying assumptions. The accountant need not be independent.

Completeness
 

Assertions about completeness deal with whether all transactions and accounts that should be in the financial statements are included. For example, management asserts that all purchases of goods and services are included in the financial statements. Similarly, management asserts that notes payable in the balance sheet include all such obligations of the entity.

Compliance
 

Following applicable internal control procedures, rules, or laws.

CPA
 

Certified Public Accountant

 

Effective income tax rate
 

The income tax provision (expense) shown on an income statement divided by pretax income. This differs from the statutory rate because of deductions, credits, and exclusions.

Effective internal control
 

Reasonable assurance that operational objectives are achieved, that published financial statements are reliably prepared, and that the entity complies with applicable laws and regulations.

General ledger

 

A record to which monetary transactions are posted (in the form of debits and credits) from a journal. It is the final record from which financial statements are prepared. General ledger accounts are often control accounts that report totals of details included in subsidiary ledgers.

Negative assurance
 

A statement of what the CPA does not know as opposed to what the CPA believes (positive assurance). A statement that the CPA was "not aware of material modifications that should be made to financial statements for them to conform with U.S. generally accepted accounting principles" is negative assurance used in review reports.

Obligations
 

Assertions about obligations deal with whether liabilities are obligations of the entity at a given date. For example, management asserts that amounts capitalized for leases in the balance sheet represent the cost of the entity's rights to leased property and that the corresponding lease liability represents an obligation of the entity.

Occurrence
 

Assertions about occurrence deal with whether recorded transactions have occurred during a given period. For example, management asserts that sales in the income statement represent the exchange of goods or services with customers for cash or other consideration.

PLLC
 

Professional Limited Liability Company/Corporation. A form of incorporation used by service providers.

Positive assurance
 

A statement as to what the CPA believes. An example is an opinion that the financial statements are presented fairly in conformity with U.S. GAAP. The opposite is negative assurance, a statement about what the CPA does not know. A statement that the CPA was "not aware of material modifications that should be made to financial statements for them to conform with U.S. generally accepted accounting principles" is negative assurance used in review reports.

Verification
 

Prove accuracy of numbers or existence of assets.

Vouch
 

Prove accuracy of accounting entries by tracing to supporting documents.

 
 
 
 
 
 
 
 
 
 
 

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