*antitrust laws.
trustee A party to a *trustee agreement who holds legal title to assets, but who also holds or manages the assets on behalf of a beneficiary.
Turnbull Report A British *corporate governance report of 1999. The report’s formal title was Internal Control—Guidance to Directors on the Combined Code. The Turnbull Report was prepared by a committee chaired by Nigel Turnbull, and the report itself has come to be popularly named for the chair- person. The report’s aim was to provide guidance to directors on implementa- tion of the internal control recommendations of the United Kingdom’s
*Hampel Report(or Combined Code) of 1998.
Further reading: Turnbull Report(1999)
turnover 1.The frequency with which an *asset is used or replaced during a period of time. For example, inventory turnover can be calculated as the total value of items of inventory sold in a defined period divided by the average value of inventory held. The term is also used to designate the frequency of employee changes in an organization. 2.A British term for *sales or sales volume.
262• two-bin inventory procedure
two-bin inventory procedure An *inventory control procedure in which two bins, or locations, are used to store quantities of a *raw material or product. The first bin is used for day-to-day use, and the second bin serves as a backup of buffer stock to avoid *stockouts in periods when the first bin awaits replenishment.
two-tier board See *board of directors.
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U
ultra vires A Latin expression that means “beyond the powers.” The term is used to refer to actions of an individual or organization that exceed the scope of defined, legal authority.
unadjusted trial balance A *trial balance that simply lists all *accounts in a *general ledger, before the making of adjustments and reclassifications.
Compare *extended trial balance.
unauditable See *auditability.
unaudited 1.Not subjected to an audit. 2.Not subjected to an audit conduct- ed in accordance with *Generally Accepted Auditing Standards.
unavoidable cost An expense that is incurred irrespective of the discretion of an organization’s managers. Compare *avoidable cost, *controllable cost, and
*sunk cost.
uncertainty The condition of being unknown or incompletely known. In audit- ing and *corporate governance, uncertainty is sometimes distinguished from
*risk on the following basis: (i) Uncertainty is a situation in which the out- comes of various courses of action are either unknown or cannot be estimated, while (ii) risk is a situation where outcomes can be estimated using *probabil- ity theory. This differentiation of uncertainty and risk has the advantage of separating the *quantitative from the *qualitative. However, in practice, many individuals collapse both meanings into the term “risk.” Contrast *certainty.
unconsolidated [of the financial statements of business combinations] Not yet subjected to *consolidation accounting.
underground economy Economic activity undertaken outside official channels. Transactions in the informal economy are usually illegal, and they are designed to circumvent laws, *regulations, and *taxation. They also tend to be settled in *cash. For obvious reasons, activities in an underground economy are normally excluded from a country’s *Gross Domestic Product statistics. However, attempts at estimating the value of underground economies are frequently attempted. The term “black market” is sometimes
264• understandability
used to distinguish *smuggling and *tax evasion activities from other aspects of the underground economy, but the two terms are often used interchangeably.
understandability The comprehension of a matter. Understandability is cen- tral to auditing in two senses: (i) An auditor is unable to perform satisfactory auditing duties in relation to an organization, activity, or asset if it is beyond his or her comprehension; and (ii) the significance of *audit evidence must be open to objective perception. Understandability is also central to the *fair presentation of *financial statements.
understatement The inadequate quantification or description of an item. The term is often used in the context of incorrectly stated accounting *balances.
Contrast *overstatement.
undertaking 1.A *profit-seeking *enterprise or activity. 2.A commitment or promise to perform an action.
underwrite, to 1.To accept the potential liabilities arising from an *insurance policy or *guarantee. 2.To agree to purchase all unsold *securities arising from a new issuance of *securities.
unearned income An alternative term for *unearned revenue.
unearned revenue Revenue not yet earned in a *financial reporting period, but for which cash has already been received. In line with the *accruals basis of accounting, unearned revenue is recorded in *current or *long-term deferred revenue accounts (classified among liabilities) in the *balance sheet, and released to the *income statement in the accounting periods to which it relates.
Typical examples of unearned revenue are rental and *subscription income.
unemployment The existence of individuals who are available for work yet who are unable or unwilling to obtain fixed employment.
unfavorable variance In *budgeting, the incurring of larger than anticipated costs or the earning of lower than anticipated revenues. An unfavorable vari- ance indicates that actual performance is worse than expected. The term is also used in *standard costing. Contrast *favorable variance.
unfunded Not receiving *funds or *money to achieve a defined purpose.
uniformity Without variation or differences. Both *Generally Accepted Account- ing Principles and *Generally Accepted Auditing Standards encourage uniform bases for the preparation of *financial statements between organizations and between *financial reporting periods.
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unit An individual item that is not further divided in smaller elements for ana- lytical or operational purposes. In production processes, for example, manufac- tured items are counted in units (which typically represent a finished *consumer good) and production unit volumes drive *absorption costing methodologies. In auditing, an *audit universe tends to be analyzed into *auditable units for *risk assessment and planning purposes.
unitary board See *board of *directors.
unit cost Total production costs attributable to *individual units of production output. See *absorption costing.
unit trust A British term for *mutual fund.
unqualified opinion An external auditor’s opinion that an entity’s *financial statements conform with *Generally Accepted Accounting Principles, and offer a *fair representation of the entity’s financial position, the results of its opera- tions, and changes in cash flows. External auditors can issue an *adverse or
*qualified opinion if they are unsatisfied with a *material aspect of the finan- cial statements. See also *disclaimer.
unsecured [of a loan] Not guaranteed against a *default (definition 2) in repay- ments by the pledge of an asset. Contrast *secured.
unsystematic risk The part of an asset’s risk that can be controlled or elimi- nated through *diversification.
Urgent Issues Task Force (UITF) A committee of the British *Accounting Standards Board. Established in 1990, the UITF is charged with reviewing the implications of urgent accounting issues. It is modeled on the United States’
*Emerging Issues Task Force.
useful (economic) life The period of time over which an asset can provide economic benefits to its owner. The costs of *long-term assets are *amortized over their useful lives. See also *wasting asset.
usury The charging of excessive *interest for the lending of *money. In tradi- tional Christian and Islamic jurisprudence, usury has sometimes been defined as simply the charging of interest, irrespective of the “unjustness” of the *inter- est rate applied.
utility 1.The benefit, pleasure, or satisfaction obtained by consuming a prod- uct or service. See also *diminishing returns and *value. 2.The practical use- fulness of an item. 3.An abbreviation for *public utility.
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validate, to 1.To confirm the *validity of something. External auditors con- firm the validity of items in *financial statements through the gathering of appropriate *audit evidence. 2. To make or to declare a *contract or other arrangement legally binding.
validity 1.The state of being relevant. *Audit evidence is valid only if it relates directly to the supporting or refuting of an *audit objective. 2.The state of being compliant with *regulations or the law.
value 1.The monetary worth of an item. See also *book value, *market value,
*price, and *wealth. 2.The *qualitative worth of an item, activity, or individ- ual. For example: “Her experience makes her of great value to the audit department.” See also *utility. 3.An ethical principle or standard of behavior.
For example, “He is a man of impeccable values.”
value added See *add value.
value added tax (VAT)An *indirect tax on goods or services collected at incre- mental stages of *production and distribution. See also *consumption tax and
*sales tax.
value-at-risk (VAR) Models used by financial institutions to measure the
*risks of complex *derivatives.
value-for-money auditing (VFM) An alternative term for *operational auditing. The term is frequently used in the United Kingdom and countries with a history of British influence, in the context of *public sector auditing, for audits that assess the Three E’s of the *economy, *efficiency, and *effectiveness.
Further reading: Flesher et al. (2003)
value in use The *present value of an *asset. Value in use is calculated by dis- counting future cash flows attributable to the use (and, ultimately, the disposal proceeds) of the asset.
variable budget An alternative term for *flexible budget.
268• variable cost
variable cost An item of expenditure that is linked closely to levels of activity.
For example, the cost of *raw materials in the manufacture of a product tends to be related closely to production levels. Contrast *fixed cost.
variance 1.In *budgeting and *standard costing, the difference between actual and anticipated costs or revenues. Variances are often categorized as *favor- able or *unfavorable. 2.A measure of the dispersion of a *probability distri- bution. The variance is calculated as the square of the *standard deviation.
vendor A seller or *supplier of goods or services. Organizations manage their
*credit transactions with vendors through *accounts payable records.
venture capital Sources of finance for new business ventures that carry high
*risks and potentially high *rewards.
verifiable The state of being capable of confirmation and objective assessment.
*Audit evidence should be verifiable in the sense of being capable of review by different auditors who may reach similar conclusions on the basis of the evi- dence. However, *verification does not necessary imply complete objectivity, as there can still be scope for subjective assessment and variety of interpretation.
verification An *examination of an activity or asset in order to obtain evidence of its existence, condition, or truth. Verification is an important *substantive test to obtain *audit evidence: “Depending on the...circumstances, verification takes place intuitively or by instruction; instantly or over time; expertly or crudely; explicitly or implicitly; and formal or informal. Whatever the mechanism, however, verification can be described as a form of auditing which is conducted with the objective of establishing the degree of correspondence between [an]
object of doubt and some acceptable criteria by which it can be judged” (Lee, 1993, 20). See also *physical verification.
Verschoor, Curtis C. (born 1931) A U.S. accounting and auditing academic.
A Professor of Accountancy at DePaul University, Chicago, IL, Verschoor’s areas of specialism include *audit committees, international accounting, inter- nal auditing, and business ethics. Before entering DePaul in 1974, he held a series of senior accounting and accounting posts in public practice and at major corporations. His writings include the book Audit Committee Briefing: Under- standing the 21st Century Audit Committee and its Governance Roles(2000).
Further reading: Verschoor (2000); Verschoor (2001) Web link: http://fac.comtech.depaul.edu/bios/cverscho.html
vertical analysis The use of one item in *financial statements as a base amount for comparative purposes. For example, if the value of *gross sales in an *income
virus • 269
statement is set at 100 percent, the various expenses within the income statement can be expressed as a percentage of gross sales. Compare *horizontal analysis.
vertical integration A *business combination of an organization with its sup- pliers. For example, a corporation that acquires its suppliers of *raw materials and components can control and simplify its *supply chain.
Viénot Report A French *corporate governance report of 1995. Prepared by a committee chaired by Marc Viénot, the report was the French equivalent of the 1992 British *Cadbury Report. The Rapport Viénot(Viénot Report) has had considerable influence in continental Europe and in the wider francophone community, and a second Viénot Reportwas issued in 1999.
Further reading: Viénot Report(1995)
Vinten, Gerald (born 1948) A British academic, author, and *internal audit- ing specialist. Editor of *Managerial Auditing Journal, and Head of Business as the European Business School in London, Professor Vinten’s written output is vast. He has authored more than 300 articles on various aspects of auditing and management, including a number of contributions to the journal he edits.
He has also produced several monographs, and was the contributing editor of the essay collection Whistle-blowing: Subversion or Corporate Citizenship?
(Vinten, 1994). With *Laurence B. Sawyer, he coauthored The Manager and the Internal Auditor: Partners for Profit(Vinten, 1996).
An indefatigable promoter of internal auditing, Vinten is a former president of the *Institute of Internal Auditors in the United Kingdom and Ireland. He has shared Laurence B. Sawyer’s mission to lift internal auditing from a compliance- focused accounting role into a wider managerial function: “Professional internal auditors are equipped. . . to evaluate any activity in the organization, both finan- cial and operational. Virtually nothing is immune from their review” (Sawyer and Vinten, 1996, 3). Vinten has not been eager to embrace every innovation in internal auditing theory, however, as indicated by this caution against overemphasis on *risk assessment techniques: “A worry is that over emphasis on risk assessment may perpetuate the traditional culture of the risk-averse internal auditor, with risk being seen as something to avoid rather than being an opportunity to be exploited” (Vinten, 1996, 93). His other areas of interest include *chaos theory, internal auditing research, *whistle-blowing, and (beyond the field of auditing) theological matters.
Further reading: Sawyer and Vinten (1996); Vinten (1991); Vinten (1992);
Vinten (1994); Vinten (1996); Vinten (2003)
virus 1.An organism, typically comprised of nucleic acid coated in protein, that causes infection or disease. The spread of viruses can present a serious opera-
270• visible asset
tional *risk to organizations—in 2003, for example, the Severe Acute Respir- atory Syndrome (SARS) virus caused massive economic disruption in Hong Kong and Toronto, among other places. 2.A program defect or code that cor- rupts computer software programs. The potentially devastating effects of com- puter viruses can be controlled through antivirus programs, and through the adequate *backup of data. See also *bug.
visible asset An alternative term for *tangible asset.
volatility The state of being subjected to rapid and unpredictable changes, with resulting high *risks. For example: “The volatility of Middle East oil markets is legendary.”