> For the complete documentation index, see [llms.txt](https://finspectors.gitbook.io/finspectors-documentation/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://finspectors.gitbook.io/finspectors-documentation/know-your-platform/concepts-and-glossary.md). # Concepts & Glossary ## **Core Entities** #### **Organisation** An [organisation ](/finspectors-documentation/know-your-platform/general-modules/organisation-setup.md)is your firm’s private workspace inside Finspectors. It brings together all your users, clients and engagements under one secured environment. Everything you create, upload or work on stays linked to your organisation so your audit practice runs in a controlled and structured way. #### **Client** A client is the company or entity you are auditing. Each client contains its own engagements, files, requests, users assigned and audit history. Managing work at the client level keeps your data clearly separated and easy to navigate. #### **Engagement** An engagement is a specific audit assignment for a client for a particular year or purpose. Every engagement has its own planning, execution, sampling, validation and reporting sections. This allows teams to work independently without mixing data between different audits. #### **Users** Users are the people in your audit firm / client who have access to Finspectors. Each user is assigned a role which determines what they can view or edit. This helps maintain proper controls during the audit and ensures the right people handle the right tasks. #### External Collaborator An external collaborator is a client-side user who responds to audit requests shared by the audit team. They receive checklists, upload documents, answer questions and provide clarifications directly through their portal. Their access is limited to only the requests assigned to them, ensuring security while making it easy for clients to complete audit requirements in one organised place. *** ## **Materiality** #### **Overall materiality** Overall [materiality ](/finspectors-documentation/audit-modules-auditor-view/planning/materiality.md)is the main threshold used to decide what is important in the audit. It guides planning, scoping and where auditors spend time. Amounts above this level are considered significant enough to potentially influence the financial statements. {% hint style="info" %} **Example:** If overall materiality is $20 Mn, any adjustment above $20 Mn could change the financial statements in a meaningful way. {% endhint %} #### **Performance materiality** Performance materiality is set lower than overall materiality to create a safety margin. It reduces the chance that several small errors across different areas could add up to a material misstatement. It helps auditors determine the extent of testing needed. {% hint style="info" %} **Example:** If overall materiality is $20 Mn, performance materiality may be set at $12 Mn. {% endhint %} #### **Transaction level materiality** Transaction materiality focuses on selecting which individual transactions should be tested. It sets a threshold for detailed testing so auditors concentrate on entries that are large, unusual or potentially risky. {% hint style="info" %} **Example:** If transaction materiality is $2 Mn, any transaction above $2 Mn may be selected for testing. {% endhint %} *** ## **Assertions** [Assertions ](/finspectors-documentation/audit-modules-auditor-view/planning/risk-assessment/assertion-scoring.md)are the claims management makes about the accuracy, completeness and presentation of the financial statements. They help auditors identify what could be misstated and focus testing on the areas that matter most. Each assertion relates to a different type of potential misstatement and guides the design of audit procedures. Below are the key assertions used across financial statement audits. #### **Profit and Loss Assertions** | **Assertion** | **Meaning** | | ---------------- | ------------------------------------------------------------------------------- | | **Accuracy** | Income and expenses are recorded using correct amounts and calculations. | | **Completeness** | All income and expenses for the period are recorded; nothing is missing. | | **Cut-off** | Revenue and expenses are recorded in the correct accounting period. | | **Occurrence** | The transactions recorded in the PL actually happened and relate to the entity. | #### Balance Sheet Assertions | **Assertion** | **Meaning** | | ---------------- | -------------------------------------------------------------------------------------------------------- | | **Presentation** | Balance sheet items are shown clearly, in the right categories, and according to reporting requirements. | | **Disclosure** | All required notes and explanations are provided and nothing important is left out. | | **Rights** | The entity truly owns the assets recorded. | | **Obligations** | The entity is genuinely responsible for the liabilities recorded. | | **Valuation** | Assets and liabilities are measured using appropriate methods and reflect their correct value. | | **Existence** | The assets and liabilities recorded actually exist on the balance sheet date. | *** ## **Risk** #### **Risk level** Risk level indicates how likely a transaction or FSLI might contain a misstatement. It is generally classified as High, Medium or Low. These levels help auditors decide the scope of work, the focus areas and the intensity of testing. #### **Financial Statement Line Item (FSLI)** An FSLI[^1] is an individual line item appearing in the financial statements, such as Revenue, Inventory or Trade Payables. Each FSLI[^1] has its own risks, assertion scores and importance in the audit. Scoping and sampling decisions are often made at the FSLI[^1] level. *** ## [**Scoping**](/finspectors-documentation/audit-modules-auditor-view/planning/scoping.md) #### **In scope** In scope means the FSLI[^1] will be included in the audit plan. It requires testing because of its materiality, risk level or nature. In scope items drive most of the audit work performed. #### **Out of scope** Out of scope means the FSLI[^1] will not undergo detailed testing. This decision is based on materiality, risk, and professional judgment. Out of scope items may still be reviewed analytically if the auditor wishes to do so but do not require the same level of work. #### **Significant** A significant FSLI[^1] is one that needs deeper attention in the audit. This may be due to its size, complexity, risk or susceptibility to error. Significant items often receive more extensive procedures. #### **Non significant** A non significant FSLI[^1] does not require the same intensity of testing. It may be lower in value, low risk or straightforward in nature. These areas usually receive limited procedures. *** ## [**Sampling**](/finspectors-documentation/audit-modules-auditor-view/execution/sampling.md) #### **Sampling source: General Ledger** Samples are drawn directly from the GL[^2] uploaded for the engagement. This is the most common source and is used when selecting transactions already part of the main ledger. #### **Sampling source: Data set** Samples are drawn from a separate file uploaded by the user, such as accounts receivable listings, inventory sheets or Payroll data or other sub ledger data. This allows more specific sampling sets. #### **Sampling source: New samples** A completely new data file can be uploaded in the required template for sampling. This is useful when the audit team needs to test data not originally included in the GL. There won't be any statistical or non statistical sampling and the uploaded samples become the sample set *** #### **Types of Sampling** #### **Non statistical sampling** Non statistical sampling relies on auditor judgment rather than probability. The auditor chooses which transactions to test based on size, nature, risk or specific criteria. It is flexible and easy to apply but depends heavily on professional judgment. #### **Statistical sampling** Statistical sampling uses probability based methods to determine the sample size and selection. It incorporates concepts like tolerable misstatement, expected misstatement and confidence level. It provides measurable assurance and supports more formal conclusions. *** #### **Four Non Statistical Sampling Methods** #### **Risk based manual selection** The auditor selects transactions manually by reviewing risk levels or characteristics. This is useful when specific entries appear unusual or require follow up. {% hint style="info" %} **Example:** Picking entries flagged as high risk by the system. {% endhint %} #### **Top X** The system picks the top X transactions by value. This is helpful when large amounts have the biggest impact on the financial statements. {% hint style="info" %} **Example:** Selecting the top 15 highest purchases for testing. {% endhint %} #### **Coverage based** The auditor specifies a percentage of total value and the system selects transactions until that percentage is reached. This ensures adequate coverage of the FSLI. {% hint style="info" %} **Example:** Selecting enough transactions to cover 40 percent of total revenue. {% endhint %} #### **Above threshold** All transactions above a defined amount are selected. This ensures high value entries are always tested. {% hint style="info" %} **Example:** Selecting every transaction greater than 10 million. {% endhint %} *** #### **Statistical Sampling Inputs** #### **Tolerable misstatement** This is the maximum error allowed in the population without affecting the auditor’s conclusion. It determines how precise the sample needs to be. {% hint style="info" %} **Example:** If tolerable misstatement is 10 million, the sample design ensures that projected errors do not exceed that amount. {% endhint %} #### **Confidence level** This represents how certain the auditor wants to be that the sample reflects the entire population. Higher confidence requires more samples. {% hint style="info" %} **Example:** A 95 percent confidence level produces more samples than a 90 percent confidence level. {% endhint %} #### **Expected misstatement** This is the auditor’s estimate of the amount of error likely to exist in the population. If higher error is expected, the sample size increases. {% hint style="info" %} **Example:** If previous audits found errors of around 2 million, expected misstatement may be set around that value. {% endhint %}
[^1]: #### **Financial Statement Line Item** [^2]: General Ledger