Glossary of Accounting Terms

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Accountant

Although all CPAs have a background in accounting, not all accountants are CPAs. CPAs are licensed to practice accountancy under state law. Only licensed accountants can perform attest services such as an audit of financial statements. The SEC also requires tha the signatory of the independent auditors report in an SEC Filing be "dually registered" with the appropriate state licensing authority.

Accredited in Business Valuation (ABV)

Designation in business valuation awarded by the AICPA to those who have met prescribed requirements and passed the examination.

Adverse Opinion

Auditor's opinion which states that financial statements do not fairly present the financial position, results of operations, or cash flows in conformity with generally accepted accounting principles.

Agreed Upon Procedures

Specific procedures agreed to by a CPA, a client and (usually) a specified third party. The report states what was done and what was found. Additionally, the use of the report is restricted to only those parties who agreed to the procedures.

American Accounting Association (AAA)

National professional association for those involved in accounting education in higher education.

Analytical Review Procedures

Substantive tests of financial information made by a study and comparison of relationships among data

Assurance Services

Services which improve the quality of information, or its context, for decision-makers.

Attestation Standards (AT)

The attestation standards enable practitioners to examine or review non-financial statement information and to perform and report on the tesults of those engagements in accordance with professional standards.

Audit

Webster's Seventh New Collegiate Dictionary defines an "audit" as a "methodical examination and review" or more specifically, "the final report of an examination of books of account by auditors."

The Securities Acts of 1933 and 1934 require the financial statements of all publicly held companies in the United States to be audited every year by an independent auditor. The SEC subsequetly mandated that the annual report of every publicly held corporation contain a Report of Independent Public Accountants. The standard audit report states that the goal of the audit is "to obtain reasonalbe assurance that the financial statements are free of material misstatement" and that the audit was performed "in accordance with generally accepted auditing standards."

The federal government subsequently expanded mandatory audit requirements to most pension plans, local and state governments, and certain not-for-profit organizations. Audits by CPAs also have become part of many real estate and other commercial agreements, as well as many bank loan requirements.

Audit Committee

Audit Committees of boards of directors have become a well-recognized and important element of corporate governance. Ideally, these committees, should consist of individuals who are independent of the management of the entity and have a strong degree of financial literacy. Audit committees typically recommend the CPA or firm to be hired as independent auditors and have oversight responsibilities for both the internal audit function and the independent audit. The SEC requires publicly held companies to include reports by their audit committee in proxy statements. Auditing standards require certain communications between the audit firm and the audit committee.

Audit Risk

the risk that an auditor will unknowingly fail to appropriately modify his/her opinion on financial statements that are materially misstated.

Audit Risk Alerts

Annual updates alerting auditors to current economic, regulatory, and professional developments in various industries. These include Compilation and Review Alerts, and approximately 18 industry-specific alerts.

Audit Sampling

The application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class.

Auditing Standards Board (ASB)

Board authorized by the AICPA to promulgate auditing and attest standards, procedures, and implementation guidance for AICPA members performing such services. It is authorized to make public statements, without clearance from Council or the Board of Directors, on matters related to its area of practice.

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