Financial statements. A structured

Financial statements. A structured representation of historical fi-
nancial information, including related notes, intended to communicate
an entity's economic resources and obligations at a point
in time or the changes therein for a period of time in accordance
with a financial reporting framework. The related notes ordinarily
comprise a summary of significant accounting policies and other
3 See section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance
With Special Purpose Frameworks.
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Overall Objectives of the Independent Auditor 81
explanatory information. The term financial statements ordinarily
refers to a complete set of financial statements as determined
by the requirements of the applicable financial reporting framework,
but can also refer to a single financial statement.
Historical financial information. Information expressed in financial
terms regarding a particular entity, derived primarily from
that entity's accounting system, about economic events occurring
in past time periods or about economic conditions or circumstances
at points in time in the past.
Interpretive publications. Auditing interpretations of GAAS, auditing
guidance included in AICPA Audit and Accounting Guides,
and AICPA Auditing Statements of Position (SOP).
Management. The person(s) with executive responsibility for the
conduct of the entity's operations. For some entities, management
includes some or all of those charged with governance; for
example, executive members of a governance board or an ownermanager.
Misstatement. A difference between the amount, classification, presentation,
or disclosure of a reported financial statement item
and the amount, classification, presentation, or disclosure that is
required for the item to be presented fairly in accordance with
the applicable financial reporting framework. Misstatements can
arise from fraud or error.
Other auditing publications. Publications other than interpretive
publications; these include AICPA auditing publications not
defined as interpretive publications; auditing articles in the Journal
of Accountancy and other professional journals; continuing
professional education programs and other instruction materials,
textbooks, guide books, audit programs, and checklists; and other
auditing publications from state CPA societies, other organizations,
and individuals.
Premise, relating to the responsibilities of management and,
when appropriate, those charged with governance, on
which an audit is conducted (the premise). Management and,
when appropriate, those charged with governance have acknowledged
and understand that they have the following responsibilities
that are fundamental to the conduct of an audit in accordance
with GAAS; that is, responsibility
a. for the preparation and fair presentation of the financial
statements in accordance with the applicable financial reporting
framework;
b. for the design, implementation, and maintenance of
internal control relevant to the preparation and fair
presentation of financial statements that are free from material
misstatement, whether due to fraud or error; and
c. to provide the auditor with
i. access to all information of which management
and, when appropriate, those charged with
governance are aware that is relevant to the
preparation and fair presentation of the financial
statements, such as records, documentation, and
other matters;
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82 General Principles and Responsibilities
ii. additional information that the auditor may request
from management and, when appropriate,
those charged with governance for the purpose of
the audit; and
iii. unrestricted access to persons within the entity
from whom the auditor determines it necessary
to obtain audit evidence.
The premise, relating to the responsibilities of management and,
when appropriate, those charged with governance, on which an
audit is conducted may also be referred to as the premise.
Professional judgment. The application of relevant training,
knowledge, and experience, within the context provided by auditing,
accounting, and ethical standards, in making informed
decisions about the courses of action that are appropriate in the
circumstances of the audit engagement.
Professional skepticism. An attitude that includes a questioning
mind, being alert to conditions that may indicate possible misstatement
due to fraud or error, and a critical assessment of audit
evidence.
Reasonable assurance. In the context of an audit of financial statements,
a high, but not absolute, level of assurance.
Risk of material misstatement. The risk that the financial statements
are materially misstated prior to the audit. This consists
of two components, described as follows at the assertion level:
Inherent risk. The susceptibility of an assertion about a
class of transaction, account balance, or disclosure to a
misstatement that could be material, either individually
or when aggregated with other misstatements, be